Written by The Banking Post
The yield on the five-year Bangladesh Government Treasury Bonds (BGTBs) continued its downward trend on Tuesday, dropping to 10.27% as commercial banks channelled surplus liquidity into government securities, seeking safety amid sluggish private sector credit demand.
According to the Bangladesh Bank’s auction results, the cut-off yield — effectively the interest rate — declined from 11.05% at the last auction held on July 15. That earlier auction had already seen a sharp fall from 12.40%, signalling a sustained easing trend in the mid-term government bond market.
On Tuesday, the government raised Tk 20 billion by issuing five-year BGTBs to partially meet its ongoing budget deficit financing needs.
“Most banks are preferring to park their excess funds in government bonds due to weaker private sector credit demand, particularly in the run-up to the general election,” a senior Bangladesh Bank official told that.
“Given the current market conditions, this downward trend in yields may persist in the coming weeks,” the official added.
Shift in Bank Strategy
The appetite for BGTBs comes as banks face limited lending opportunities in the real economy. With credit growth to the private sector slowing sharply in recent months, many treasury departments are finding it more prudent to allocate excess liquidity to risk-free government instruments rather than pursuing new corporate lending.
Bankers note that, while government bonds offer lower returns than high-yield loans, they are highly secure and liquid, making them attractive during periods of market uncertainty.
Government Debt Instruments in Focus
At present, the domestic bond market includes five categories of Bangladesh Government Treasury Bonds with maturities of 2, 5, 10, 15, and 20 years. Alongside bonds, the government also issues four types of Treasury Bills (T-bills) with shorter maturities of 14, 91, 182, and 364 days, auctioned regularly to meet borrowing needs.
Economists point out that falling yields may signal both ample banking sector liquidity and reduced demand for government borrowing costs, but also highlight potential concerns about the lack of productive investment avenues in the private sector.
