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.

GOV’T OF GHANA TO ISSUE GH¢400 MILLION 3-YEAR FIXED RATE BOND TODAY; READ TERMS

TERMS 
Issuer: Government of Ghana
Purpose: For Government budget support and to rollover maturing debt
Amount: GH¢400 million
Issue Method: Through an auction to be held on 30th May, 2013
Price: The instrument shall be issued at par.
Denomination: Each Bond shall have a face value of one Ghana cedi.
Minimum Bid: GH¢50,000 and multiples of GH¢1,000 thereafter.
Coupon: To be determined at the auction to be held on 30th May, 2013.

Interest Payment:

Semi-annually from the Issue Date, in December and June.

The amount of interest paid on every coupon payment date 

shall be equal to the principal amount at the coupon rate for half-year. 

Withholding Tax: The Internal Revenue Act 2000 requires the Bank to withhold tax in respect of interest payments to resident corporations holding Bonds on their own account at the rate of 10% of the gross amount of the payment. Interest paid to a non-resident holder (individual or institution) on Bonds issued by the Government of Ghana is exempt from tax.
Application Methods: Bids may be made on either a competitive or noncompetitive basis through Primary Dealers only. Primary Dealers may also submit bids on their own behalf. Bids received will not be revocable.
Participation: The 3-year Fixed Rate Bond shall be available to both
resident and non-resident investors.
Closing Date: Bids must be electronically delivered to the Central Securities Depository Auction Module not later than 1.30 pm on Thursday, 30th May, 2013

Click here to Download the Full Prospectus 

Dollarization of the Ghanaian Economy: MD writes.

By Guest Blogger: David Mawutor Avor ( M. D. Avor );

Not too long ago, I used to watch the News on television without giving a hoot about business news. In fact, I would rather switch my channel to a different station than watch all those “meaningless” figures about the “dollar is trading at…” and so forth. How times change! Now that I have started
involving myself in transactions that require foreign currencies, “necessity is laid on me” to take keen interest in the subject of foreign exchange.
This Saturday, I received a called from one of my very good friends from my high school days and we ended up discussing the way exchange rates are going in Ghana. Following the discussions, I decided to write my own opinion on the issue.
In January 2012, you needed about GH¢ 1.27 to get a dollar. Today (June, 2012), you need GH¢ 1.97 to get a single dollar!

What is responsible for this free fall of the cedi?
To an economics student like myself, the answer to this question is quite simple – DEMAND AND SUPPLY. Ghanaians demand for foreign currencies especially the dollar, far outweighs the supply we have in the economy.
I have the privilege of working in one of Ghana’s best insurance companies. Currently in my company, we have succumbed to the pressure of issuing a number of insurance policies in dollar rates instead of cedi. Try paying school fees at any so called international school around and, I assure you that you will most certainly pay in dollars.
Do I blame individuals who quote their prices in dollars?
Certainly not! A business minded person like me, will never blame individuals who try to keep their money in things that will appreciate in the future. So knowing that the dollar is most likely to increase against the cedi in the future, I do not blame any business or business minded individual who tries to protect his or her “hard-earned” currency by changing them now for dollars.
But I must also admit that this free fall of the cedi is equally not good for all of us!  
What is the way forward then?
Simple, Government policies! Government has the power to at least minimize the free fall of our beloved currency. How? One of two options:

1. By increasing the supply of dollar notes. This can be achieved by buying more dollars from the international market and releasing them into the economy (which to me is the easier but weaker option) or

2. By decreasing the demand for dollar notes. Policies such as banning the practice of quoting prices of local items in dollars, increasing our domestic production of food crops so as to reduce our imports etc, but as you will agree with me, these options are tougher and need GUTS ON THE PART OF GOVERNMENT.

Now the multi-million dollar question (or, the multi-million cedi question): DO OUR LEADERS HAVE THE GUTS TO CALL THE SHORTS TO SAVE OUR “POOR” CEDI?We live to see! 

Contact writer / Guest Blogger: Email: avordm@gmail.com