How Treasury Bills are sold or bought

Most people ask me a lot of questions about Treasury Bills and Notes and how they come about. Others wonder what the table above represent when they see it in the newspapers on Tuesdays so I have decided to do a little education on the whole process of Treasury bills  and how  the rates come about. 

First of all you should know that, the only two use of Treasury bill to the investor are for protection against  what I call, "the notorious wealth killer" - Inflation and compensation for postponing consumption. My finance lecturer will tell you, those are the only uses, don't bother to look for any. Now you should know that in Ghana, the government through the Bank of Ghana (BOG) deals with the primary dealers (Banks mostly) when it wants to borrow from the public. The primary dealers interact with the  lending public on behalf of the BOG. They mobilize funds from me and you who wants to buy treasury bills and on Fridays, go to the sell it.

The 'BIDS TENDERED' column represent the amount of money mobilized by the primary dealers or the banks. We are lending to the government through them and it is up to the government to reject the Bids tendered or Accept them at the rates we propose. As you can see above, the Ghana government for last week's bids, has accepted all and those are recorded in the next column - 'BIDS ACCEPTED'. 

The 'Range of Bid' column represent the rates at which the various banks or primary dealers are lending to the government. It's from the lowest rate to the highest rate. BOG normally accepts the offers from the the lowest rates to the highest rates. In the case where the Ghana government will not accept all the monies offered, primary dealers who quoted high interest rates would be rejected. It's unfortunate that the Ghana government needs so much money that, they can't afford than to accept all the rates offered by the primary dealers.

Looking at the budget deficit requirements, I can actually forecast the borrowing requirements of the Government of Ghana hence in the next bidding process, the primary dealers who tendered low will be bidding higher and this will eventually lead to an increase in the interest rates. 

And in the case where the government refuses to accept all the rates and only stop at 21.00%, all the higher bidders will be rejected hence the the primary dealers will be forced to reduce the rate in the next bidding which will make interest rates fall.

Moving forward, the 'Bid Allocation' column focuses on the BOG calculating the allocation for each dealer with respect to the amounts they have to give to the government and the rates they bid with. When this is done, the weighted average is calculated and then the Interest Rate / Treasury bill rates are arrived at for the following week. These rates are announced on Mondays, mostly on Bank of Ghana website and in the newspapers on Tuesdays to guide the market for the week after which the process begins again on Friday.

Now you know how the Treasury Bill rates are arrived at and how they are bought or sold.  Let me know if you have any other concerns. 

Keep Investing.

More Debt to Pay Debt: Bank of Ghana announces Securities Issuance calendar for February 2016

The aggregate borrowing for the month of February 2016 is GH¢6,030.00 million, to cover maturities of GH¢5,553.94 million. Check out the details:

MERGER OF GSE SECURITIES DEPOSITORY COMPANY LTD & CENTRAL SECURITIES DEPOSITORY LTD GH

The Central Securities Depository GH Ltd was established in 2004 to manage the issue, redemption and maintain the records of ownership of securities issued by Government of Ghana, Bank of Ghana and the Ghana Cocobod. The Central Securities Depository is wholly owned by the Bank of Ghana.
In 2008, the Ghana Stock Exchange (GSE) also established the GSE Securities Depository Company Limited (GSD) as a subsidiary to provide custody for securities listed on the Ghana Stock Exchange and also to provide for the dematerialization of share certificates.
It has been realised that the capital market in Ghana is not big enough to be served by two depositories. The Ministry of Finance facilitated discussions since 2010 between the Bank of Ghana and the Ghana Stock Exchange towards a merger of the two subsidiaries.
In April 2013 a Transaction Advisor was engaged to advise on the process. The Due Diligence Reports and Valuations Reports of the Transaction Advisor were accepted by the Boards of the Bank of Ghana and the Ghana Stock Exchange.
Highlights of the agreement are as follows:
The Central Securities Depository (GH) Ltd shall be the surviving entity.
Effective date of the merger is January 1, 2014.
The issued shares of 3,500,000 of the CSD will be maintained.
Bank of Ghana will own 82% of the new company and transfer 18% to the Ghana Stock Exchange.
The Ghana Stock Exchange will be allowed to increase its shareholding up to 30% within one (1) year at a price existing at the time of the merger.
A new Board of Directors will be appointed by the two shareholders to manage the affairs of the company. Mr. Stephen Tetteh, maintains his position as Chief Executive Officer while Mrs. Melvina Amoafo, the current Executive Director of the GSE Securities Depository Company assumes the position of Deputy Chief Executive. All staff of the GSE Securities Depository Company will be absorbed into the new company.
The merged entity will handle securities listed and unlisted on the Ghana Stock Exchange as well as Government of Ghana and Bank of Ghana Instruments, Cooperate Bonds and Money Market Instruments. It will also operate the registrar services under the licence granted by the Securities and Exchange Commission.
The merger will provide a common depository platform for the two institutions and harmonisation of trading as well as clearing and settlement practices. This will generate benefits and thus create significant additional value for all market participants.
The merger will make for a more efficient trading of fixed income and equity securities and reduce operational cost for the merged depository and lower transaction cost for market participants. It will also make the market more attractive to investors. Investors will maintain only one account for all their portfolio. The resources of the shareholders, Bank of Ghana and Ghana Stock Exchange can be pooled together to build a state-of the-art infrastructure to modernise the operations of the depository.
The registered office of the new entity will be on 4th Cedi House, Liberia Road, Accra.
Contact Numbers: 0302 689313/4

Courtesy: Ghana Stock Exchange.

PROSPECTUS FOR THE ISSUE OF GH¢400 MILLION GOVERNMENT OF GHANA 3-YEAR FIXED RATE BOND

BANK OF GHANA
NOTICE TO THE GENERAL PUBLIC
NOTICE NO. BG/TD/2013 /07
PROSPECTUS FOR THE ISSUE OF GH¢400 MILLION
GOVERNMENT OF GHANA 3-YEAR FIXED RATE BOND

1. INVITATION OF BIDS

Further to the Bank of Ghana Notice No.: BG/TD/2012/58 on the Issuance Calendar for Government of Ghana securities for the half-year period: 1st January – 30th June, 2013, the Bank of Ghana invites bids for the issue of the above instrument on behalf of the Government of Ghana through the Auction process.

The instrument will be Ghana Cedi-denominated and will be issued at par. It shall bear a coupon rate equal to the highest competitive bid accepted at the auction for the security. The coupon rate so fixed shall carry throughout the term of the security.