Yields on Bangladesh’s Treasury bills fell below 8 per cent across all three maturities on Sunday for the first time in three years, as surplus liquidity at stronger banks and weak demand for private sector loans intensified competition for government securities.
The sharp decline in short-term government borrowing costs reflects a broader easing in the money market, with banks increasingly investing idle funds in Treasury bills even as falling deposit rates threaten to erode savers’ returns against inflation.
At Sunday’s auction, the cut-off yield on 91-day Treasury bills dropped 48 basis points to 7.6501 per cent from 8.1302 per cent, while the 182-day yield fell 62 basis points to 7.7498 per cent from 8.3699 per cent.
The 364-day bill recorded the steepest decline, shedding nearly 71 basis points to 7.8870 per cent from 8.5949 per cent.
Average yields stood at 7.5831 per cent for 91-day bills, 7.6888 per cent for 182-day bills and 7.8001 per cent for 364-day bills.
Yield is the actual yearly return investors earn from their invested sum. It is determined by the price investors pay for the securities bearing a certain rate of interest.
For instance, an investor may buy a Treasury bill having a face value of Tk100 and a 10 per cent annual interest rate. With weak demand, the investors bought it for Tk92. The actual annual income from the instrument rises above 10 per cent.
Amid high demand, if the investor buys it at Tk110, the yield falls below 10 per cent.
On Sunday, pro-rata allotments were about 35 per cent, 62 per cent and 46 per cent of applications for the respective three maturities, indicating demand significantly exceeded the securities allotted.
Chartered financial analyst Kazi Ahsan Maruf, managing director of Ekush Wealth Management, attributed the falling yields to rising demand for Treasury bills from banks struggling to deploy surplus funds amid sluggish private sector credit growth.
He said five or six financially strong banks were aggressively channelling excess liquidity into government securities, pushing yields lower.
The decline comes as monetary policy easing reshapes returns across the financial system. Although a second round of policy rate cuts was recently withheld following a cumulative 50-basis-point reduction since early August, investors are anticipating further easing.
Maruf said the market expected another reduction before the central bank’s monetary policy committee meeting scheduled for January.
He also pointed to an anticipated Tk20,000 crore injection through money creation to refinance stimulus loans, which he said could further increase banking sector liquidity.
Against this backdrop, Maruf expects Treasury bill yields to remain around 7.5 per cent.
“The strong banks have already cut their deposit rates in line,” he said.
For savers, the decline carries a cost. Deposit rates have fallen below inflation amid monetary easing, leaving households facing a loss of purchasing power on their savings.
Treasury bill yields have undergone a dramatic reversal since the pandemic, when returns on the short-term government securities fell below 1 per cent.
They climbed above 9 per cent in October 2023 amid a foreign exchange reserve crunch and peaked in the 11.75 to 12 per cent range in October 2024 before gradually retreating.
The decline has accelerated since June this year.
Bangladesh issues Treasury bills with maturities of 91, 182 and 364 days, while longer-term Treasury bonds carry maturities of two, five, 10, 15 and 20 years.
Transactions in these securities take place through dealer banks, while the stock exchanges, too, trade government bonds.
The easing has also spread to longer-term government debt.
At the 22 September auction, yields on 20-year Treasury bonds fell to 9.35 per cent from 12.75 per cent two years earlier, generating substantial capital gains for investors holding those securities.
The 10-year Treasury bond yield dropped to 8.54 per cent last month and is expected to fall further in the upcoming auction this month.
UCB Asset Management Managing Director SM Rashedul Hasan said yields were falling across maturities as money market conditions eased, flattening the yield curve.
He expects investors to show greater interest in undervalued blue-chip stocks in the coming months as returns on fixed-income securities decline.
The outlook, however, is clouded by uncertainty surrounding Bangladesh’s relationship with the International Monetary Fund (IMF).
Several analysts cautioned that the government’s decision to abandon the IMF lending programme could introduce fresh uncertainties into financial markets.
Finance Minister Amir Khosru Mahmud Chowdhury said on 4 October that Bangladesh had cancelled the programme, rejecting conditions he described as unacceptable and signalling a shift towards raising funds through the capital market.
Equity analysts also expressed caution over high inflation, slow growth and the stresses on corporate earnings.
