Bangladesh’s long-term government bond yields have fallen to their lowest level in about three years, extending a decline that began in short-term securities as banks channel excess liquidity into government debt amid weak private-sector credit demand.
At Tuesday’s auction, the yield on the 20-year treasury bond fell to 9.1275%, down from 10.4000% in the previous auction on 29 July. The average yield stood at 9.1089%.
The yield on the 15-year treasury bond also declined to 9.0975% from 10.3425% in the previous auction, with an average yield of 9.0872%. Bangladesh Bank raised Tk2,000 crore through the two instruments.
The latest fall follows a broad decline across the government securities market. Earlier this week, yields on 91-day, 182-day and 364-day treasury bills fell to 8.8290%, 8.9200% and 9.0700%, respectively.
The move marks a sharp reversal from the high-yield environment of the past two years, when government borrowing costs climbed amid elevated inflation and tighter monetary conditions.
The 20-year bond yield had risen above 12.6% in 2024 before starting to ease last year and nosedive this year.
Market participants said the decline reflects a combination of excess liquidity in banks, limited lending opportunities and expectations of further monetary easing.
“Banks are preferring to buy treasury securities, causing yields to drop below the policy rate of 9.5 per cent,” said Asif Khan, chairman of Edge Asset Management.
He said weak private-sector credit demand has left banks with fewer attractive lending opportunities, prompting them to invest surplus funds in government securities.
“The market has liquidity and there are limited investment opportunities, so this reaction is natural,” said Sheikh Mohammad Rashedul Hasan, managing director and CEO of UCB Asset Management.
He said the yield curve is shifting downward as investors adjust to changing monetary conditions.
Bangladesh Bank cut its policy rate by 50 basis points last month to 9.5%, and market participants expect further easing if inflation continues to decline.
“If inflation continues on a declining trend, the market is expecting that another rate cut could come in a few months,” Rashedul Hasan said.
The decline has been visible across both short- and long-term securities. The 20-year bond yield, which stood at 10.4% in the 29 July auction, dropped by more than 127 basis points in Tuesday’s auction.
The 15-year bond yield fell by nearly 125 basis points over the same period.
The trend reflects stronger demand for government securities as banks rebalance portfolios amid slower credit expansion.
Bangladesh Bank regularly issues treasury bills and bonds through auctions to meet the government’s borrowing needs and manage liquidity in the financial system.
