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

High and Volatile Treasury Yields in Tanzania:The Role of Strategic Bidding and Auction Microstructure by Yuri Vladimirovich Sobolev
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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.
International Monetary Fund; March 2008
29 pages; ISBN 9781452743035
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Title: High and Volatile Treasury Yields in Tanzania:The Role of Strategic Bidding and Auction Microstructure
Author: Yuri Vladimirovich Sobolev; S. M. Ali Abbas
 
ISBNs
1451913966
9781451869422
9781451913965
9781452743035