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

 
Author/Editor: Abbas, S. M. Ali ; Sobolev, Yuri Vladimirovich
 
Publication Date: March 01, 2008
 
Electronic Access: Free Full text (PDF file size is 594KB).
Use the free Adobe Acrobat Reader to view this PDF file

 
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.
 
Series: Working Paper No. 08/81
Subject(s): Bonds | Tanzania | Bond issues | Debt burden | Bank credit

Author's Keyword(s): Treasury bill yields | government securities auctions | oligopolistic bidding | collusion | auction microstructure
 
English
Publication Date: March 01, 2008
Format: Paper
Stock No: WPIEA2008081 Pages: 29
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
Please address any questions about this title to publications@imf.org