Accra: The Treasury bill market has seen a significant rally at the start of 2026, with interest rates dropping rapidly as investors flock to government securities. The decline in rates is driven by improving inflation figures and strong demand, alongside expectations of further rate cuts. However, a critical question arises: are these yields falling too swiftly, even before the government has issued the majority of the debt planned for this year?
According to Ghana Web, the government has only completed a small portion of its 2026 domestic borrowing program. Nevertheless, short-term Treasury bill yields have already decreased by over one percentage point within just two weeks. This gap between declining yields and the substantial future borrowing planned has raised concerns among investors.
Between early January and February 9, total bids at Treasury bill auctions reached GHS74.42 billion, indicating strong and consistent demand. Out of this, the Treasury accepted GHS54.29 billion, rejecting nearly GHS20 billion, to curb borrowing at lower interest rates. During the same period, GHS40.98 billion in bills matured, resulting in net new domestic debt issuance standing at approximately GHS13.31 billion-less than 20 percent of the government's full-year domestic financing target.
Despite this modest issuance, yields have sharply declined. In the two weeks leading up to February 9, the 91-day Treasury bill yield dropped by a cumulative 123 basis points, while the 182-day and 364-day bills fell by 84 and 100 basis points, respectively. For some market observers, the rapid decline suggests that investors might be pricing in comfort prematurely, before the government's larger borrowing needs affect the market.
The changing sentiment became evident in February. In January, Treasury bill auctions were already drawing strong demand, but yields were mixed or rising due to refinancing pressures. Investors remained cautious, even as bids surpassed targets. However, in early February, inflation data exceeded expectations, and policy easing expectations grew stronger.
At the February 9 auction, investors submitted GHS17.42 billion in bids, about 2.5 times the target amount. The Ministry of Finance accepted just GHS5.83 billion and rejected GHS11.42 billion, despite the accepted amount comfortably covering maturities of GHS4.84 billion. Yields decreased again, with the 91-day bill easing to 9.97 percent, the 182-day bill to 11.82 percent, and the 364-day bill to 12.06 percent.
A week earlier, on February 2, bids totaled GHS17.11 billion against an offer of GHS6.99 billion. The sharp fall in yields has been supported by a rapid improvement in inflation. Headline inflation slowed to 5.4 percent year-on-year in December 2025 from 6.3 percent in November, before falling further to 3.8 percent in January 2026. Core inflation, excluding energy and utility costs, dropped to 4.6 percent in December from 23.1 percent a year earlier.
These figures bolstered confidence that inflation pressures have eased across the economy, aided by stable currency conditions, lower food prices, and favorable base effects. In response, the Bank of Ghana cut its policy rate by 250 basis points to 15.5 percent in January, a deeper cut than many analysts had anticipated. The central bank stated that its 2025 inflation target had been met and predicted that inflation would remain within its 8 percent plus or minus 2 percent target band in 2026, provided fiscal discipline is maintained.
The Treasury accepted GHS12.31 billion, covering maturities of GHS6.81 billion and marking the first clear break in a five-week upward trend in yields. Apakan Securities, in a note to clients, mentioned that the central bank's guidance supports the recent rally but cautioned that further yield declines might be limited.
The firm noted that despite the significant rate cut, real interest rates remain meaningfully positive, indicating that monetary conditions are still restrictive compared to current inflation. With easing price pressures, inflation is likely to stay within the target band in 2026, but the central bank is expected to pause further adjustments in the near term. The firm added that most of the policy easing had already been priced into the market, suggesting any further yield compression would likely be gradual rather than sharp.
The primary focus for investors is the significant borrowing test that lies ahead. As per the 2026 Budget, the government plans to raise GHS71 billion in domestic financing this year, equivalent to 4.4 percent of GDP. This will be achieved mainly through short- and long-term government securities. Additionally, the government intends to issue GHS10 billion in domestic infrastructure bonds later in the year. These bonds will be issued in two GHS5 billion tranches, with maturities of 10 to 15 years and tax-exempt status for investors, supporting roads, energy, housing, and other projects under the Big Push program.
Analysts expect strong demand for the infrastructure bonds, but their issuance will still add to the overall supply in the domestic market. Demand for government paper has also been bolstered by regulatory changes. The Securities and Exchange Commission has directed local fund managers to reduce offshore investments to protect the cedi and strengthen macroeconomic stability. The regulator has capped foreign securities at 20 percent of assets under management and restricted funds that previously had full offshore exposure. While these measures are expected to redirect more money into domestic assets, including Treasury bills and bonds, some analysts warn it could increase concentration risk and reduce diversification for local investors.