Written by The Banking Post
Yields on Bangladesh’s long-term treasury bonds fell below the central bank’s policy rate on Tuesday, as banks directed excess liquidity into government securities amid weak private credit demand ahead of the national elections.
According to auction results, the cut-off yield on 15-year Bangladesh Government Treasury Bonds (BGTBs) declined to 9.67 per cent from 10.28 per cent earlier, while the yield on 20-year BGTBs dropped to 9.70 per cent from 10.38 per cent. The current policy rate, or repo rate, stands at 10 per cent.
Despite lower yields, the government raised Tk 20 billion through the issuance of long-term BGTBs to help finance its budget deficit.
Market operators said long-term bond yields have been sliding since July, reflecting higher liquidity inflows and a slowdown in credit demand from both public and private sectors. On July 29, the 15-year yield dropped to 10.48 per cent from 12.59 per cent, while the 20-year yield fell to 10.55 per cent from 12.49 per cent.
“A section of banks are investing their excess funds in risk-free government securities due to weaker private sector credit demand ahead of the election,” a senior Bangladesh Bank official said.
Private sector credit growth inched up to 6.52 per cent year-on-year in July from 6.49 per cent in June, reflecting subdued business sentiment and tighter lending conditions.
Officials also noted that relatively lower government borrowing needs have added downward pressure on yields. At the same time, the central bank’s recent dollar purchases have increased liquidity in the system. Since July 13, Bangladesh Bank has bought $1.88 billion from banks under the free-floating exchange rate regime.
Currently, five types of treasury bonds—with maturities of two, five, 10, 15 and 20 years—are traded in the market, alongside four treasury bills (T-bills) with maturities of 14, 91, 182 and 364 days.
