Long-term Treasury bond yields rise as government borrowing demand grows
According to the plan discussed at the meeting, the government intends to borrow an additional Tk21,000 crore from commercial banks in October and November outside the scheduled borrowing calendar.
Yields on Bangladesh's 15-year and 20-year Treasury bonds rose slightly yesterday as the government's demand for borrowing from commercial banks increased, with the authorities planning to raise an additional Tk21,000 crore outside the scheduled borrowing calendar in October and November.
The yield on the 15-year Treasury bond rose to 9.34% from 9.10%, while that on the 20-year bond increased to 9.35% from 9.13%, a senior Bangladesh Bank official told The Business Standard.
The rise in long-term bond yields comes as the government's funding needs increase while revenue collection remains below target, prompting it to seek more borrowing from commercial banks.
Bankers said the government's demand for funds had increased while the money available in its coffers remained limited. Revenue collection has also fallen short of the target, they said, prompting the government to increase its borrowing from commercial banks.
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The higher demand for government funds has contributed to the rise in yields on the 15-year and 20-year Treasury bonds, bankers said.
Another senior Bangladesh Bank official said the government would borrow an additional Tk15,000 crore through Treasury bond auctions in October, on top of the amount set out in the borrowing calendar. It plans to borrow another Tk6,000 crore in November outside the calendar, the official said.
Last week, senior finance ministry officials held a meeting with representatives of commercial banks, giving bankers an indication of how much the government may borrow from banks between October and December.
According to the plan discussed at the meeting, the government intends to borrow an additional Tk21,000 crore from commercial banks in October and November outside the scheduled borrowing calendar.
The movement in bond yields also comes against a backdrop of uncertainty over the central bank's monetary policy. Bangladesh Bank recently cut its policy rate from 10% to 9.5%, raising expectations that it could lower the rate further.
But the recent rise in fuel prices is expected to push up the prices of goods and could add to inflationary pressure.
Commercial banks are therefore waiting to see whether Bangladesh Bank will change its policy rate, bankers said. Expectations are now building that the policy rate could either remain unchanged or be raised, they added.
Bankers also pointed to the US Federal Reserve's decision this week to raise its policy rate from 3.75% to 4%. The move was aimed primarily at controlling inflation, they said.
Meanwhile, growth in bank lending to the private sector remains subdued. Bangladesh Bank had reduced its policy rate as part of its strategy to encourage private-sector borrowing, but the move has yet to translate into stronger credit growth.
Private-sector credit growth stood at 4.62% in July, the latest available figure.
Businesses are also not taking loans from funds available under the stimulus package announced by Bangladesh Bank, as demand for new loans remains weak, bankers said.
At present, yields on all three maturities of Treasury bills are below 8.5%. Yields on all types of Treasury bills and bonds had been declining for more than a month before the latest increase in long-term bond yields.
