The government may have to choose from some challenging refinancing options to pay for Treasury debt that will grow in October 2022. Per Databank Research’s Weekly Fixed Income Update, the anticipated domestic debt restructuring may prevent a refinancing offer on October 3, 2022 from gaining any support. To obtain more advantageous refinancing possibilities, it was indicated that the government would probably add the Bank of Ghana’s support to any refinancing bid.
Fitch Ratings reduced Ghana’s Issuer Default Rating last week from “CCC” to “CC.” For the most recent downgrade, they highlighted a potential debt restructuring, significant debt service costs, and restricted financing. This is anticipated to make it more difficult for the Treasury to refinance its options for the debt that will mature on October 3, 2022.
Investors to Maintain Interest in Near-Term Maturities
Investors should continue to be interested in upcoming maturities. Investor interest in short-term maturities in the secondary market will remain strong in the meantime on the bond market.
Investors are projected to concentrate on Treasury bills in the primary market and also keep an eye out for a bond offering to refinance the October 3, 22, and maturing paper. In the secondary market, they are anticipated to continue to be interested in near-term maturities.
What are Treasury Bills (T-Bills)?
T-Bills are short-term investment instruments with maturities ranging from 91 to 365 days that are backed by the government and issued by the Bank of Ghana. T-bills are considered to be the safest short-term financial instrument because there is no perceived danger of default associated with these debt obligations. T-bills also do not have a significant interest rate risk.
Factors that Cause a Rise or Fall in Treasury Bills
Interest rates: There is a direct relationship between interest rates and treasury bills. Globally, investors are concerned about Treasury yields. Treasury yields serve as the main reference point for all rates. Existing T-bills lose popularity when interest rates increase because their rates are less appealing than those of the general market. T-bills, therefore, have an interest rate risk, which means there is a chance that current bondholders won’t benefit from future increases in interest rates.
Inflation: Treasury yields increase as fixed-income assets lose appeal as inflationary pressures increase. Additionally, central banks are frequently compelled to boost interest rates to reduce the money supply by inflationary forces. Investors are compelled to seek out higher yields in inflationary conditions to make up for future declines in purchasing power. Interest rates are influenced by some other variables, such as periods of unusually high (low) rates of inflation.
Economic Growth: Strong economic growth often causes a rise in aggregate demand, which, if it lasts for an extended period, raises inflation. There is a struggle for capital when there is rapid expansion. Investors consequently have a wide range of opportunities to produce significant profits. For treasuries to achieve this equilibrium between supply and demand, Treasury yields must increase.
The Ghanaian economy has been in decline since the beginning of the year with high inflation rates and poor economic growth which have resulted in higher interest rates. These have led to treasury debt as the Ghanaian market has become unappealing to investors. The economy needs serious fixing to ensure economic stability which affects all Ghanaians, businesses, and investors as well.
Priscilla Fumadorh
Priscilla is an entrepreneur and a creative communicator who loves to communicate through writing. She is passionate about national economic issues and does not miss a chance to offer her opinions on them for the good of the country.
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