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High And Volatile Treasury Yields In Tanzania: The Role Of Strategic Bidding And Auction Microstructure

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  • Sm ali Abbas
  • Yuri v. Sobolev

Abstract

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 a simple theorising of bidder incentives under unorthodox issuance practices, this paper traces the recent volatility in yields to the emergence of a sharp segmentation of the T-bill market between sophisticated financial market players (foreign-controlled banks) and a less-experienced group of investors (domestic pension funds and small banks). An important policy recommendation that emerges is that public debt managers should avoid micro-managing 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. Copyright (c) 2009 The Authors. Journal compilation (c) 2009 Economic Society of South Africa.

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Bibliographic Info

Article provided by Economic Society of South Africa in its journal South African Journal of Economics.

Volume (Year): 77 (2009)
Issue (Month): 2 (06)
Pages: 257-281

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Handle: RePEc:bla:sajeco:v:77:y:2009:i:2:p:257-281

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Cited by:
  1. Christopher Adam & Peter Montiel, 2012. "Financial Architecture and the Monetary Transmission Mechanism in Tanzania," Economics Series Working Papers WPS/2012-03, University of Oxford, Department of Economics.

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