T-Bills are very risky, says Joe Jackson

Chief Executive Officer (CEO) of Dalex Finance, Joe Jackson, has described as very risky the Government’s short-term debt instruments (Treasury Bills).

The riskiness of T-Bills, he noted, has to do with the high-interest rates on the short-term debt instruments.

Asserting that due to the risky nature of T-Bills, most financial institutions price their instruments or financial products lower than interest rates on T-Bills.

“T-Bills are very risky and that’s how the market sees it, and also that’s why financial institutions price their products below T-Bill rates.

“Most financial institutions are saying that the T-Bill rates are too high and that they can’t compete with the T-Bill rates on the market,” he quipped, further bemoaning the Government’s heavy reliance on T-Bills.

Mr Jackson made the assertion during the an Economic Governance Platform (EGP) X Space Discussion on the topic “Are Government T-Bills and Bonds Risk-Free?”

Regarding the high interest rates on T-Bills which is a factor of high inflation, IMF Mission Chief to Ghana, Stephane Roudet averred interest rates in Ghana are mainly driven by domestic factors, not so much by the global environment, and in particular by the level of inflation and monetary policy in the country.

On the Government’s reliance on T-Bills, Mr Roudet clarified that there was never an expectation for the government to regain access to international capital markets in the near term.

“There was never any expectation that things would unfold differently when it comes to the financing picture for the government. The government has lost access to international capital markets. It was never expected that this access would be regained anytime soon. Of course, it will be regained in time, but the programme has to be implemented, and the debt restructuring has to be completed. There are lots of things that have to fall into place,” he posited.

Given the government’s restructured medium and long-term debt, Mr Roudet further emphasized that financing would primarily be sourced from the short-term segments of the domestic market.

“It was clear that especially having restructured medium and long-term debt, that would mean that access to domestic markets would be mainly on the short-term segments. So there is no surprise here. Again, the expectation was that the government would finance itself mainly on the short end of the market and there is no surprise there. The expectation was also that it would finance itself on the short end of the market at interest rates that already would be close to the policy rate because this is the same type of maturity,” he remarked.

Also speaking during the X Space Discussion, was Prof Lord Mensah who quipped that T-Bills are not as ‘risk-free’ as investors have been made to believe as there are several risks such as default risk, interest rate risk, inflation risk, liquidity risks among others that the short term debt instruments are exposed to.

Further asserting, that recent defaults by Governments around the world with regard to the redemption of their short-term debt instruments (T-Bills) and bonds, further undermine the supposed ‘risk-free’ nature of Government T-Bills and bonds.

“Globally, the trend now is that Governments are defaulting on their bonds and short-term debt instruments, examples are Jamaica and Argentina. So if you look at it, it is not risk-free anymore,” he quipped.