The financial markets are showing early signs of strain as rising Treasury bill yields, a rebound in consumer and producer inflation and persistent foreign exchange (FX) demand complicate an otherwise improving macroeconomic environment.
The latest Treasury bill auction recorded weaker investor participation, ending a two-week period of oversubscription and highlighting growing caution among market participants despite abundant liquidity in the banking system.
At Tender 2012, aggregate bids fell 20.24 percent below the Treasury’s GH¢5.27billion target, with investors submitting approximately GH¢4.2billion. Government accepted all bids received, raising enough to refinance the week’s GH¢3.38billion in maturing obligations but falling short of its borrowing objective.
The weaker demand came alongside a marked upward adjustment in yields. The 364-day Treasury bill recorded the largest increase, rising 38 basis points to 11.36 percent while the 91-day and 182-day instruments climbed by 27 basis points and five basis points respectively.
According to Constant Capital, the softer auction demand reflects liquidity absorbed through earlier issuances and growing investor caution as yields continue to rise. While the Bank of Ghana’s sterilisation operations have tightened liquidity conditions, their impact has been more evident in pricing than overall investor participation.
“The coexistence of substantial excess liquidity and softer Treasury bill demand suggests investors are becoming more selective rather than withdrawing from the market altogether,” the firm said, noting that continued oversubscription of OMO instruments indicates liquidity remains elevated.
It added that the recent rise in yields reflects a repricing of risk rather than a deterioration in market liquidity, with attention now focused on whether higher rates can attract stronger demand without significantly increasing government borrowing costs.
The latest auction suggests investors are demanding higher compensation for holding government securities even as inflation remains subdued and refinancing pressures ease. That adjustment comes amid the central bank’s continued efforts to absorb excess liquidity through open market operations.
Data compiled by Black Star Analytics show the central bank absorbed approximately GH¢168.9billion through open market operations (OMO) in May 2026. That volume was more than double the average monthly OMO absorption of GH¢81.6billion recorded between May 2025 and May 2026 and remained close to the record levels seen in March and April.
The scale of sterilisation reflects the persistence of excess liquidity in the banking sector. Notably, the amount absorbed through OMO operations during May was more than eight times the GH¢20.4billion accepted at Treasury bill auctions over the same period.
The divergence between liquidity conditions and government borrowing needs has become increasingly apparent in recent months.
Treasury bill acceptance volumes declined to GH¢20.4billion in May, broadly unchanged from April but significantly below the GH¢48.5billion recorded in January. At the same time, Treasury bill maturities fell to GH¢16.9billion, enabling government to generate a net financing surplus of approximately GH¢3.5billion during the month.
The improved funding position suggests government is facing less immediate refinancing pressure than earlier in the year, allowing debt managers greater flexibility in auction allocations and borrowing costs.
Yet signs of caution are also emerging in secondary markets. Treasury bill turnover dropped to GH¢11.6billion for May from GH¢19.4billion in April, indicating a slowdown in trading activity despite the large amount of liquidity circulating within the financial system. Bond market activity also moderated last week, with turnover easing to GH¢10.91billion from GH¢12.01billion previously.
Investor interest nevertheless remained concentrated in medium-term instruments. According to Apakan Securities, the February 2034 bond accounted for roughly 34 percent of trading volumes within the new bond segment while the February 2032 bond represented about 25 percent. This concentration points to investors continued search for duration exposure even as yields adjust higher at the short end of the curve.
Beyond fixed-income markets, inflation data are adding a new dimension to investor concerns.
Headline consumer inflation edged higher in May, rising for the second consecutive month to 3.7 percent y/y from 3.40 percent y/y in April 2026 – primarily driven by unfavourable base effects – while the cedi’s 7.65 percent m/m depreciation provided an additional pass-through effect to domestic prices.
Producer price inflation accelerated to 5.8 percent year-on-year in May from 2.7 percent in April, marking the second-highest reading recorded this year. The increase was driven primarily by mining and quarrying, where inflation rose to 11 percent from 5.6 percent a month earlier.
Manufacturing also returned to positive territory while transport costs strengthened, indicating that pricing pressures are becoming more widespread across productive sectors.
Although producer prices declined by 1.4 percent on a monthly basis, analysts argue that the annual acceleration points to firmer underlying cost conditions.
Constant Capital said latest producer inflation data strengthen the view that Ghana’s disinflation trend may be nearing a turning point. The firm noted that sustained increases in upstream costs could eventually filter through to consumer prices if current trends persist.
Meanwhile, the FX market remains stable but continues to exhibit signs of underlying demand pressure.
The cedi was supported by BoG interventions and stronger interbank market activity during the week. The central bank supplied US$260million through its foreign exchange auction programme while interbank turnover reached approximately US$117million.
However, demand continued to exceed supply at the auctions as underlying foreign currency requirements remain elevated despite improved liquidity conditions.
By end of last week the cedi had depreciated 0.55 percent against the U.S. dollar, although it gained against both the British pound and euro. The local currency remains up 4.53 percent month-to-date but is still 6.22 percent weaker than at beginning of the year.
Commodity markets provided a mixed backdrop. Brent crude settled at US$80.57 per barrel following easing geopolitical tensions linked to a U.S.-Iran peace framework, while gold prices declined as safe-haven demand moderated. Cocoa prices however continued to rise on supply concerns, potentially supporting Ghana’s export earnings outlook.
The market’s attention will focus on the Treasury’s planned GH¢4.6billion issuance this week and whether higher yields will be sufficient to restore stronger investor participation.
