Due to heightened demand from banks, interest rates on Treasury bills and bonds have been reduced by 10 to 29 basis points.
According to data on the Bangladesh Bank website, banks placed offers totaling Tk 180 billion for the government’s five-year bills and bonds in the latest auction held on Tuesday. Of this, Tk 40 billion was successfully raised at an interest rate of 12.09 percent.
In comparison, the last auction on January 6 had an interest rate of 12.38 percent for the same bond, marking a decrease of 29 basis points.
Bangladesh Bank also reported a decline in interest rates on Treasury bills. On Monday, the 91-day Treasury bill carried an interest rate of 11.34 percent, raising Tk 35 billion. Additionally, Tk 20 billion was raised with an interest rate of 11.68 percent from 181-day Treasury bills, while another Tk 20 billion was raised from 364-day bills at an interest rate of 11.81 percent.
Treasury bills are short-term financial instruments issued by the government, generally maturing in one year or less. They are considered low-risk investments, guaranteed by the government.
While Treasury bills and bonds are typically available for purchase by any institution or individual, commercial banks have been increasingly investing their excess liquidity in them in recent years.
In the January 6 auction, the interest rates for the 91-day Treasury bill were 11.43 percent, the 182-day bill was 11.80 percent, and the 364-day bill was 11.95 percent.
Interest rates on Treasury bills and bonds decrease when banks’ bid amounts surpass the government’s money demand, and increase when the government needs more money than the banks are willing to bid.
A senior official at Bangladesh Bank explained, “Currently, the growth in bank deposits is low. However, financially sound banks are receiving deposits, and these banks have better liquidity than weaker ones.”
He added, “Several banks are in poor condition, leading customers to withdraw deposits, which are then moved to more stable banks. These stronger banks are also investing in Treasury bills and bonds.”
Another official stated, “As bank lending to the private sector has declined, banks are left with idle funds. To earn good returns, they have opted to invest in Treasury bills and bonds.”
Syed Mahbubur Rahman, CEO of Mutual Trust Bank Limited (MTB), noted, “The government has reduced its net borrowing and is working on reducing its expenses. Meanwhile, with low credit flow to the private sector, banks are increasingly investing in this sector (Treasury bills and bonds).”
