High and Volatile Treasury Yields in Tanzania: The Role of Strategic Bidding and Auction Microstructure

March 1, 2008

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Yuri V Sobolev, and S. M. Ali Abbas High and Volatile Treasury Yields in Tanzania: The Role of Strategic Bidding and Auction Microstructure, (USA: International Monetary Fund, 2008) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The observed increase in the level and volatility of Tanzania's Treasury yields in recent years against an otherwise benign macroeconomic backdrop presented a puzzle for policymakers, while raising concerns about the fiscal burden of rising debt interest payments and diversion of bank credit away from the private sector. Using evidence from bid-level data and supported by theoretical models, this paper argues that oligopolistic bidding through 2005 may have been partly responsible for the rising level of yields; while the high volatility during 2006-07 could be traced to the emergence of a sharp segmentation of the T-bill market between sophisticated financial market players (foreign-controlled banks) and a lessexperienced group of investors (domestic pension funds and small banks). An important policy recommendation that emerges is that public debt managers should avoid micromanaging Treasury bill auctions by issuing amounts in excess of those offered or by dipping into oversubscribed segments of the yield curve, as such practices seriously disadvantage the less-sophisticated (but more competitive) investors vis-à-vis the more sophisticated players.

Subject: Banking, Commercial banks, Foreign banks, Government securities, Treasury bills and bonds

Keywords: T-bill market, T-bill yield, WP, Yield

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/081
Stock No:

WPIEA2008081
ISBN:

9781451869422
ISSN:

1018-5941

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