Investors begin ditching TBills as rates hit low levels

cedi depreciates

Investors have begun ditching Tbills and now exploring other investment instruments in the country over the continuous significant decline in TBill rates in the country.

The Treasury bill rates for the 91 and 182 days started 2016 at 22 and 23 percent respectively.

But the figures however reduced to 18 percent by the end of December last year.

Figures from the Bank of Ghana (BoG) as at Wednesday morning (January 4, 2017) showed the rate for 91 day TBill had dropped further to 16.7 percent while that of 182 days stood at 17.91 percent.

See also: Is there any hope for the equity market in 2017?

Explaining the reasons accounting for the drop, the Director and Head of Market at Barclays bank Ghana, Kobla Nyaletey told Citi Business News the decline can largely be attributed to the drop in inflation as well as the increase in liquid cash for most banks for the period.

Inflation has dropped from about 19 to 15.5 percent and so naturally when inflation begins to decline, we should see interest rates also move down so that is the movement that we have began to see. Indeed the 91 day T-Bill declined quite significantly but all other interest rates in the market have also been on the declining path over the past few weeks and months,” he stated.

Mr. Nyaletey added, “Typically in the 4th quarter in particular, the mass liquidity improves on the back of the commencement of the cocoa season. As a result, liquidity in the banking sector has been very robust over the past few months and that is also being driven by banks pushing this liquidity into government paper.”

Moreover, the relative slow pace in the growth of credit has compelled banks to consider government instruments which equally have forced interest rates to drop.

Meanwhile Kobla Nyaletey like other market observers in the fixed income market, has intimated to Citi Business News the trend is likely to run through the year.

Treasury bills are nonetheless, one of the most patronized investment instruments by most investors in Ghana.

 

Source: citibusinessnews.com

 

Treasury bill investment: Choosing between 91-Day, 182-Day & 1-Year Note

treasury bill investment

Treasury bill investment has not been something new to the investing public. Being one of the most safest and liquid form of investment products, it has become one of the first products to come to mind when one wants to invest.

We may all have been aware of the different Treasury bill investment terms (or periods) issued by the Government of Ghana, the common ones being the 91-Day term, the 182-Day term and the 1-Year Note. Each Treasury bill term is issued with a different interest rate which keeps changing week by week. As investors, we generally seek for high returns or interest rates on our investments (considering risks of course). However, have you ever thought of this question before?:

Which of the Treasury bill investment terms will yield more profit if invested in?

Well, if you have thought about this before, then I guess we share a common thinking 🙂 at least on this one. But wait! We’re not alone. Many others have similarly queried whether the 91-Day term, the 182-Day term or the 1-Year Note should be the ideal Treasury bill investment term when it comes to profit. To answer this query, we may need some data over a certain period, preferably over a reasonable period. Using historical data of Treasury bill rates, we tried to find out the different profits one would have made if he had invested exclusively in each of the Treasury bill terms throughout a particular year. For simplicity, we used GH¢ 1000 as a starting principal for all scenarios.

For instance, within the same calendar year,

Scenario 1: How much profit would one make if he had invested GH¢ 1000 exclusively in a 91-day Treasury bill throughout the year?

Scenario 2: How much profit would one make if he had invested GH¢ 1000 exclusively in a 182-day Treasury bill throughout the year?

Scenario 3: How much profit would one make if he had invested GH¢ 1000 exclusively in a 1-Year Treasury bill note?

From the three different scenarios, we compared to find out which would have been more profitable. This analysis was done using historical data for the past four (4) years. That is, from 2012 to 2015. The results from the analysis may guide investors when deciding on Treasury bill investment.

See also: Treasury bill versus Dollar holding: A performance comparison




Treasury bill investment- Historical data

The tables below show some historical data of Treasury bill for four (4) calendar years (2015, 2014, 2013 & 2012). As mentioned earlier, our main motive was to find out which of the Treasury bill terms would have yielded more profits if one had invested exclusively in it throughout a particular year.

Using 2015 as an example, investing exclusively in a 91-Day Treasury bill term (starting from 05/01/2015) would require a roll-over of the invested capital after every three months. That is, a roll-over on 06/04/2015, 06/07/2015 and finally 05/10/2015.

Similarly, investing exclusively in a 182-Day Treasury bill term (starting from 05/01/2015) would require a roll-over of the invested capital after six months (06/07/2015).

However, investing exclusively in a 1-Year Note would require only a one-time investment on 05/01/2015.

 

Date Treasury bill rates, %
91-Day 182-Day 1-Year Note
05/01/2015 25.8385 26.4077 22.5
06/04/2015 25.2039
06/07/2015 25.1978 25.8819
05/10/2015 25.3026
04/01/2016 22.7939 24.3574 23
Date Treasury bill rates, %
91-Day 182-Day 1-Year Note
06/01/2014 19.233 19.1813 17
07/04/2014 23.9862
07/07/2014 24.1023 22.3453
06/10/2014 25.7118
05/01/2015 25.8385 26.4077 22.5
Date Treasury bill rates, %
91-Day 182-Day 1-Year Note
07/01/2013 23.0275 22.9947 22.9
08/04/2013 22.9829
08/07/2013 23.0715 23.0314
07/10/2013 20.623
06/01/2014 19.233 19.1813 17
Date Treasury bill rates, %
91-Day 182-Day 1-Year Note
16/01/2012 10.82 11.09 11.25
16/04/2012 13.85
16/07/2012 22.3415 22.9123
15/10/2012 23.1219
14/01/2013 22.9117 22.7443 22.9

Treasury bill investment- Interest earned on GH¢ 1000

In the tables below, you will find the various interests or profits earned on investing GH¢ 1000 exclusively in each of the Treasury bill periods.

This was done in two categories. First, we calculated the total profits earned when one does not reinvest any of the intermediary profits accrued within the particular year.

In the other category, we calculated the total profits earned when one reinvest all intermediary profits accrued within the particular year.

Note: All calculated profits are in Ghanaian Cedis (GH¢)

 

Category 1: Interest earned on GH¢ 1000 with no reinvestment of intermediary profits

2015- Interest earned on GH¢ 1000 
91-Day 182-Day 1-Year Note
1st month 0 0 0
3rd month 64.60 0 0
6th month 63.01 132.04 112.50
9th month 62.99 0.00 0.00
12th month 63.26 129.41 112.50
Total profit 253.86 261.45 225.00
2014- Interest earned on GH¢ 1000 
91-Day 182-Day 1-Year Note
1st month 0.00 0 0
3rd month 48.08 0 0
6th month 59.97 95.91 85.00
9th month 60.26 0.00 0.00
12th month 64.28 111.73 85.00
Total profit 232.58 207.63 170.00
2013- Interest earned on GH¢ 1000 
91-Day 182-Day 1-Year Note
1st month 0 0 0
3rd month 57.57 0 0
6th month 57.46 114.97 114.50
9th month 57.68 0.00 0.00
12th month 51.56 115.16 114.50
Total profit 224.26 230.13 229.00
2012- Interest earned on GH¢ 1000 
91-Day 182-Day 1-Year Note
1st month 0 0 0
3rd month 27.05 0 0
6th month 34.63 55.45 56.25
9th month 55.85 0.00 0.00
12th month 57.80 114.56 56.25
Total profit 175.33 170.01 112.50

 

Category 2: Interest earned on GH¢ 1000 after reinvestment of intermediary profits

2015- Interest earned on GH¢ 1000 after reinvestment of intermediary profits
91-Day 182-Day 1-Year Note
1st month 0 0 0
3rd month 64.60 0 0
6th month 67.08 132.04 112.50
9th month 67.22 0.00 0.00
12th month 67.51 146.50 112.50
Total profit 266.40 278.54 225.00
2014- Interest earned on GH¢ 1000 after reinvestment of intermediary profits
91-Day 182-Day 1-Year Note
1st month 0 0 0
3rd month 48.08 0 0
6th month 62.85 95.91 85.00
9th month 64.04 0.00 0.00
12th month 68.40 122.44 85.00
Total profit 243.37 218.35 170.00
2013- Interest earned on GH¢ 1000 after reinvestment of intermediary profits
91-Day 182-Day 1-Year Note
1st month 0 0 0
3rd month 57.57 0 0
6th month 60.76 114.97 114.50
9th month 61.18 0.00 0.00
12th month 54.71 128.40 114.50
Total profit 234.23 243.37 229.00
2012- Interest earned on GH¢ 1000 after reinvestment of intermediary profits
91-Day 182-Day 1-Year Note
1st month 0 0 0
3rd month 27.05 0 0
6th month 35.56 55.45 56.25
9th month 57.84 0.00 0.00
12th month 61.15 120.91 56.25
Total profit 181.60 176.36 112.50

Conclusions

From the results, it can be noticed that investing GH¢ 1000 exclusively in either a 91-Day or 182-Day Treasury bill period yielded more profit than investing the same amount in a 1-Year Note. This observation applies for both categories ie. whether reinvesting intermediary profits or not.

The above conclusion may be attributed to the fact that money invested in a 1-Year Note attracts a fixed interest rate until one calendar year before it could be invested again with the prevailing (new) interest rate. On the other hand, money invested in a short term Treasury bill (91-Day or 182-Day period) normally enjoys a gradual upward change in interest rates within the calendar year.

Comparing the profits earned on the 91-Day and 182-Day terms, an interesting cyclical kind of observation could also be made. While the 182-Day Treasury bill earned more profit in 2015 and 2013 than the 91-Day Treasury bill, the 91-Day Treasury bill, on the other hand, yielded more profit in 2014 and 2012 than the 182-Day Treasury bill.

So, here we are. Locking up our money in a long-term treasury bill investment such as the 1-Year Note may not be the right choice. Instead, short term treasury bill investment, such as the 91-Day term, offers a high possibility of yielding more profit.