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 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-�-vis the more sophisticated players.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 08/81.
Date of creation: 01 Mar 2008
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Other versions of this item:
- Sm ali Abbas & Yuri v. Sobolev, 2009. "High And Volatile Treasury Yields In Tanzania: The Role Of Strategic Bidding And Auction Microstructure," South African Journal of Economics, Economic Society of South Africa, vol. 77(2), pages 257-281, 06.
- NEP-ALL-2008-05-10 (All new papers)
- NEP-FMK-2008-05-10 (Financial Markets)
- NEP-MST-2008-05-10 (Market Microstructure)
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.:
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Economics Series Working Papers
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