Oversubscribed T-Bills, Strong Bond Demand, and Rising Interbank Turnover (Sept 2025)

In September 2025, Tanzania’s financial markets displayed strong liquidity and investor confidence, reflected in an oversubscribed T-bill auction (TZS 194.7 billion bids against TZS 80.7 billion tender) and a decline in average yields to 6.03% from 6.83% the previous month. Bond market activity remained solid, with long-term tenors (20- and 25-year) attracting substantial investor interest, contributing to total bids of TZS 2,271.5 billion, of which TZS 784.9 billion were accepted, and yields stabilizing between 12.48% and 13.55%. Meanwhile, the interbank cash market strengthened markedly, with transactions rising to TZS 3,261.6 billion from TZS 2,374.5 billion—an increase of TZS 887.1 billion—driven by higher commercial banking activity, stable liquidity conditions, and sustained export inflows. Interbank rates remained stable at 6.45%, comfortably within the 3.75–7.75% policy corridor, supported by the Bank of Tanzania’s active liquidity management through reverse repos. Collectively, these developments indicate a resilient and well-functioning financial ecosystem, where strong liquidity supports monetary policy transmission, reduces financing pressures, and deepens market confidence.

1. Government Securities Market

Government securities include Treasury bills (T-bills) and Treasury bonds (T-bonds). They are used for financing government operations and managing liquidity.

Key Highlights

• One Treasury bill auction was conducted in September 2025.
• Tender size: TZS 80.7 billion
• Bids received: TZS 194.7 billion
• Successful bids: TZS 80.7 billion
• Oversubscription reflects high liquidity in the market.
• Weighted average yield decreased to 6.03% (from 6.83% in August 2025)

Bond Market

The BOT conducted auctions for:

• 5-year bond — Tender TZS 136.2 billion — undersubscribed
• 20-year bond — Tender TZS 271.1 billion — oversubscribed
• 25-year bond — Tender TZS 293.7 billion — oversubscribed

Accepted Bids and Yields

• Total bids received: TZS 2,271.5 billion
• Total accepted: TZS 784.9 billion
• Weighted Average Yields:
  • 5-year: 12.48%
  • 20-year: 13.55%
  • 25-year: 13.19%

Summary Table — Government Securities Market (September 2025)

2. Interbank Cash Market (IBCM)

The IBCM allows banks to borrow and lend liquidity—crucial for monetary policy transmission.

Key Highlights

• Total IBCM transactions in September 2025:
  • TZS 3,261.6 billion
  • Up from TZS 2,374.5 billion in August 2025
• 7-day transactions had the largest share (64.6% of total)
• Rates remained stable due to adequate liquidity:
  • Overall IBCM rate: 6.45%
  • Previous month: 6.48%

Liquidity Dynamics

• Overnight rate and 7-day market rate stayed within the policy band (3.75%–7.75%).
• BOT used reverse repo operations to stabilize liquidity.
• Interbank activity increased due to:
  • Higher commercial banking activities
  • Steady credit expansion
  • Strong inflows from export sectors

Summary Table — Interbank Cash Market (September 2025)

Final Combined Overview Table

Implications of Financial Markets Developments in September 2025

The data on Tanzania's government securities and interbank cash markets (IBCM) for September 2025, extracted from Financial Markets of the Bank of Tanzania's (BOT) Monthly Economic Review (October 2025), signals a liquid and confident financial system. This aligns with broader economic resilience: 6.3% Q2 GDP growth, stable 3.4% inflation, accommodative monetary policy (CBR 5.75%; Section 2.3), shilling appreciation (9.4% y/y; Section 2.5 IFEM), and a manageable fiscal deficit (TZS 618.5B financed partly via securities; Section 2.6). T-bill oversubscription (194.7B bids vs. 80.7B tender) and declining yields (6.03%) reflect surplus liquidity, while long-term bond demand (oversubscription for 20/25-year tenors) indicates investor optimism. IBCM turnover surged 37.4% MoM to TZS 3,261.6B, with rates steady at 6.45% within the 3.75–7.75% corridor, underscoring effective liquidity management amid export inflows (gold/crops/tourism). Below, I outline implications, categorized by market and linkages.

1. Government Securities Market: Investor Confidence and Liquidity Absorption

• T-Bills: Oversubscription and Yield Compression (6.03% from 6.83%): The 2.4x bid-to-cover ratio (TZS 194.7B bids for TZS 80.7B) highlights abundant short-term funds from banks and institutions, driven by private credit expansion (16.1% y/y) and fiscal needs (domestic debt TZS 37,459B, up 0.9%). Lower yields signal easing funding costs for government, reducing pressure on the deficit (financed via these instruments).
• T-Bonds: Selective Demand with Stable Yields (12.48–13.55%): Undersubscription in 5-year (TZS 136.2B tender) contrasts with oversubscription in longer tenors (20-year TZS 271.1B, 25-year TZS 293.7B; total accepted TZS 784.9B from TZS 2,271.5B bids), pointing to preference for duration amid low inflation expectations (core 2.2%). Yields held firm, reflecting risk premiums for longer horizons but attractiveness vs. inflation (real yields ~9–10%).
• Broader Implications:
  • Positive: Oversubscription eases borrowing (supports 71.9% expenditure execution) without crowding out private lending (rates at 15.18%; prior analysis). Signals macroeconomic trust, boosted by shilling strength (lowers external debt service) and global stability (IMF 3.2% growth).
  • Risks: Short-term yield drop could flatten the curve, signaling potential liquidity overhang if not mopped up (via reverse repos). Undersubscription in shorter bonds may indicate caution on near-term fiscal risks (e.g., revenue shortfalls from mining taxes).

2. Interbank Cash Market (IBCM): Enhanced Transmission and Activity

• Turnover Surge (+37.4% to TZS 3,261.6B; 64.6% 7-Day Share): Rise from August's TZS 2,374.5B reflects heightened banking operations, fueled by export FX conversions (e.g., gold inflows) and credit demand (M3 +20.8% y/y). 7-day dominance indicates preference for short-term balancing amid stable policy.
• Rate Stability (6.45% from 6.48%, Within Corridor): Anchored by BOT's reverse repo fine-tuning (absorbing surpluses), this supports monetary transmission, keeping lending viable without volatility.
• Broader Implications:
  • Positive: Boosts financial deepening, aiding growth sectors (agriculture/mining contributions 1.8%/1.5% to GDP; Chart 2.1b). Stable rates reinforce low inflation (food eased to 7.0% via NFRA stocks) and shilling (BOT USD 11M intervention).
  • Risks: Over-reliance on short tenors could amplify shocks if liquidity tightens (e.g., from global tightening). Higher activity may strain smaller banks if not matched by capital buffers.

3. Interlinkages: Liquidity Supporting Growth and Stability

• Policy Effectiveness: Declining T-bill yields and stable IBCM rates align with CBR (5.75%), enhancing transmission to real economy (e.g., easing short-term borrowing for exporters). This complements fiscal financing (securities absorbed TZS 618.5B deficit) and debt sustainability (40.1% debt/GDP).
• Investor and Sector Ties: Long-bond demand from pensions/insurers (institutional inflows) reflects confidence in 6% growth projection, while IBCM surge ties to external strength (CA surplus USD 1.2B Q2). In Zanzibar, similar liquidity likely aids tourism financing.
• Broader Implications:
  • Positive: Fosters efficient intermediation (spread ~5.7 pp; prior analysis), positive real rates (vs. 3.4% inflation), and resilience to commodities (oil down aiding energy inflation 3.7%). Supports EAC/SADC convergence.
  • Risks: Excess liquidity risks asset bubbles if credit overheats; global uncertainties (trade policy index up) could reverse yields. Monitor for spillover to inflation if unabsorbed.

4. Macroeconomic Context from the Review

• Synergies: These markets underpin monetary-fiscal coordination, with securities funding development spend (TZS 1,273B) and IBCM enabling 29.0% M1 growth. Projections: Stable yields, liquidity to sustain 6% GDP and 3–5% inflation.
• Outlook: Continued oversubscription likely if exports hold; BOT may adjust repos to prevent easing bias.

In summary, September 2025's financial market dynamics imply a robust, liquid ecosystem that reinforces Tanzania's stability and growth enablers. Oversubscription and turnover growth signal trust and efficiency, mitigating fiscal pressures while amplifying monetary impact—key for navigating global risks into late 2025.