Abstract This study examines the impact of yield dynamics on investment behavior in Tanzania’s Treasury securities market. Using secondary data obtained from the Bank of Tanzania, the Ministry of Finance and Planning, the Dar es Salaam Stock Exchange, and other official financial market reports, the study analyzes trends in Treasury securities yields, interbank cash market liquidity, and private sector credit allocation. The analysis is guided by Keynesian Liquidity Preference Theory, Portfolio Choice Theory, and Crowding-Out Theory to explain investor behavior and interest rate movements. The findings reveal that persistently high yields on long-term Treasury securities have significantly influenced investment behavior, leading to strong investor demand and repeated oversubscription of government securities auctions. Despite adequate liquidity and declining interest rates in the interbank cash market, financial institutions continue to allocate a substantial share of their portfolios to Treasury securities due to their attractive risk-adjusted returns. This investment pattern has contributed to a partial crowding-out effect, whereby increased government borrowing absorbs domestic financial resources and constrains private sector credit growth without fully displacing private investment. The study highlights the central role of Treasury securities in Tanzania’s financial system and underscores the need for balanced fiscal and monetary policy coordination to promote sustainable financial intermediation and market diversification.