History of Treasury Bills Market in Ethiopia: T-bills Yield and other Interest Rates

Abstract

The main objective of the paper is to the development of treasury treasury bills market in Ethiopia (which is a primary market sold directly to the primary investor on the auction) from the year 1995-2016. To meet the objective, descriptive method of data analysis has been employed to explain graphically the demand for and supply of T-bills, the yield applied for different maturing bills, the role of T-bills as a monetary policy instrument (OMO) & government financing  and comparative analysis between different interest rates (Saving deposit and Time deposit interest rates), inflation and T-bills yield. The data used for the analysis is annul and is collected from National Bank of Ethiopia. The paper finds out, that T-bills market is in its initial stage even if it was started before two decades since its establishment. We also find illogical relationship between T-bills yield, saving interest rates and inflation. The yield applied for T-bills doesn’t take into account the market interest rate (minimum deposit interest rate in Ethiopian case) and the level of inflation (it erodes out) the return from investing on T-bills. From the result obtained from the analysis it is recommended that, the yield for T-bill must follow the level of interest rate (deposit), take in to account the level of inflation and follow normal Yield curve to have efficient and reasonable price for government securities and to use T-bill as Open Market Operation for monetary policy.

Keywords: Government securities, T-bills Yield, Interest rate, inflation