High And Volatile Treasury Yields In Tanzania: The Role Of Strategic Bidding And Auction Microstructure
AbstractThe 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 InfoArticle provided by Economic Society of South Africa in its journal South African Journal of Economics.
Volume (Year): 77 (2009)
Issue (Month): 2 (06)
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Other versions of this item:
- Yuri Vladimirovich Sobolev & S. M. Ali Abbas, 2008. "High and Volatile Treasury Yields in Tanzania:The Role of Strategic Bidding and Auction Microstructure," IMF Working Papers 08/81, International Monetary Fund.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David Hauner, 2006. "Fiscal Policy and Financial Development," IMF Working Papers 06/26, International Monetary Fund.
- Leonardo Bartolini & Carlo Cottarelli, 1997. "Designing effective auctions for treasury securities," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 3(Jul).
- Peter Montiel & Christopher Adam & Wilfred Mbowe & Stephen O’Connell, 2012.
"Financial Architecture and the Monetary Transmission Mechanism in Tanzania,"
CSAE Working Paper Series
2012-03, Centre for the Study of African Economies, University of Oxford.
- 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.
- Riham Shendy & Zachary Kaplan & Peter Mousley, 2011. "Toward Better Infrastructure : Conditions, Constraints, and Opportunities in Financing Public-Private Partnerships in Select African Countries," World Bank Publications, The World Bank, number 2331, March.
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