The latest Treasury Bills (T-bills) auction conducted by the National Bank of Ethiopia (NBE) on July 23, 2025 (Auction No. 982) revealed continued strong appetite for government securities, with total bids surpassing ETB 31.3 billion, nearly three times the ETB 11.08 billion offered. However, the distribution of bids and acceptances highlights a continued investor preference for shorter-term instruments amid uncertainty over inflation, monetary tightening, and fiscal positioning.

Oversubscription Dominated by Short-Term Bids

The auction attracted overwhelming demand for the ultra-short-term 28-day bills, with bids totaling ETB 10.4 billion against a modest offer of ETB 221.7 million. The same trend extended to the 91-day bills, with bids reaching ETB 15.9 billion against an offer of ETB 3.2 billion. In contrast, the longer-dated 182-day and 364-day instruments received relatively tepid interest, only ETB 3.2 billion and ETB 1.8 billion in bids, respectively, against offers of ETB 4.53 billion and ETB 3.1 billion.

This skewed demand suggests a lack of investor confidence in locking funds for the medium to long term—possibly reflecting inflationary risks, liquidity preferences, or concerns about macroeconomic stability in the months ahead.

Acceptance Signals Cautious Monetary Policy

The National Bank of Ethiopia accepted ETB 8.45 billion in total, well below the total bids received. Notably, the central bank fully accepted competitive bids for all tenors up to the amount it had planned to raise, showing a conservative stance in managing liquidity. The 182-day and 364-day maturities saw a marked under-acceptance, with only ETB 3.2 billion and ETB 1.8 billion accepted, respectively, against significantly higher offers.

The decision to under-allocate the longer-term bills, even in the face of relatively high yields, may reflect the central bank’s focus on managing short-term funding needs while maintaining discipline in borrowing costs.

Yields Reflect Market Risk Appetite and Policy Anchoring

The yield dynamics show an interesting pattern:

  • The 28-day bills cleared at a cut-off yield of 13.97%, with the weighted average yield matching that figure. Despite high demand, the yield remained relatively low, reflecting a “safe parking spot” for excess liquidity.
  • The 91-day bills had a slightly higher cut-off yield of 14.55%, but a lower weighted average yield at 14.41%. The narrow yield spread indicates strong competition among bidders.
  • The 182-day bills stood out with a cut-off and maximum yield of 21.00%, suggesting that investors demanded significantly higher compensation for duration risk. The accepted weighted average yield, however, was a more moderate 16.64%, implying that some lower-yielding bids were also successful.
  • The 364-day bills had a uniform price of ETB 87.00 per ETB 100 face value, corresponding to a cut-off and average yield of 14.98%. Despite its full acceptance, the relatively low interest in the one-year instrument underscores a lingering investor hesitancy.

Overall, the weighted average yield across all accepted bids stood at 15.36%, indicating an upward pressure on short- to medium-term borrowing costs for the government.

Signals for Policymakers and Markets

This auction result provides several takeaways for market observers and policymakers:

  • Investor confidence remains shallow beyond 3 months, suggesting that inflation expectations or broader economic risks are not yet fully tamed.
  • Short-term liquidity is abundant, as evidenced by the huge oversubscription on 28-day and 91-day papers.
  • Monetary policy remains cautiously tight, with the central bank accepting lower-than-expected volumes and not overly compromising on yields.
  • Yield curve flattening at the longer end indicates that the government is not willing to overpay for long-term funds, possibly signaling a preference for rolling over shorter-term debt.

What to Watch Going Forward

As Ethiopia progresses with its Homegrown Economic Reform agenda and transitions toward a market-driven exchange rate, future T-bill auctions will offer a critical barometer of investor sentiment and confidence in macroeconomic stabilization efforts. Key factors to watch include:

  • Progress on inflation reduction and monetary policy modernization
  • Upcoming reforms in the domestic debt market, particularly the development of benchmark yield curves
  • The potential entry of institutional investors (like pension funds and banks) once the capital market gains momentum

The July 23 auction underscored both the opportunities and constraints in Ethiopia’s domestic debt market. While investor demand remains robust, it is clear that confidence in longer-term fiscal and monetary stability is still developing. For the NBE, balancing funding needs with credible policy signaling will remain a delicate act in the quarters ahead.

Visit our data hub to get more analytical data: https://data.stockmarket.et/directory/treasury-bills