Ethiopia’s Treasury bill yields declined sharply over the past six weeks as excess liquidity built up in the banking system, driving strong demand for government securities and pushing short-term rates lower. Weighted average yields across 28-day to 364-day bills fell to 13.77% at the Feb. 18 auction from 16.08% on Jan. 8, a 2.3-percentage-point drop that reflects lenders’ rush to deploy idle funds.
Market participants had widely expected the National Bank of Ethiopia to lift credit growth caps on commercial banks last quarter; when that policy shift failed to materialize, loan expansion slowed and liquidity accumulated on bank balance sheets.
The impact was most visible in the mid-tenor segment, where 91-day bill yields fell nearly 20% relative to early January levels, signaling intense demand for instruments that help banks manage short-term liquidity while retaining flexibility. Oversubscription peaked at more than twice the offered amount in early February, when bids reached 135.8 billion birr, before moderating in the latest auction a pattern analysts say reflects episodic liquidity surges tied to regulatory constraints rather than a durable easing cycle.
Longer-dated securities also rallied, with 364-day yields dropping to 15.51% from 17.52%, suggesting lenders are locking in returns ahead of potential policy adjustments that could eventually revive credit growth and push rates lower. Persistent demand for 182-day and one-year tenors indicates banks are positioning defensively in an environment where inflation remains elevated and private-sector borrowing has yet to fully recover.
The yield compression offers early insight into how regulatory policy is shaping Ethiopia’s financial conditions at a pivotal moment for its emerging capital market. While falling yields can signal easing monetary conditions, the volatility in bid volumes including a sharp drop in demand between the Feb. 4 and Feb. 18 auctions underscores the fragility of liquidity dynamics. Future rate movements will likely hinge on whether authorities relax credit caps, fiscal flows stabilize, and foreign-exchange pressures ease, all of which will determine the trajectory of Ethiopia’s developing yield curve.