High And Volatile Treasury Yields In Tanzania: The Role Of Strategic Bidding And Auction Microstructure
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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Volume (Year): 77 (2009)
Issue (Month): 2 (June)
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References listed on IDEAS
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- 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).