Treasury bill, bond yields fall into single digits
Bankers said the increased demand for Treasury bills is itself contributing to the decline in their interest rates.
Interest rates on all types of Treasury bills and bonds have fallen into single digits, with yields declining steadily since June as banks grapple with excess liquidity and weak private-sector credit demand.
According to Bangladesh Bank data, the yield on the short-term 91-day Treasury bill is now 8.83%, while those on 182-day and 364-day Treasury bills stand at 8.92% and 9.07%, respectively.
Among longer-term Treasury bonds, the yield on the two-year bond is 9.39%, while those on three-year, five-year, 10-year and 15-year bonds are 9.90%, 9.35%, 9.23% and 9.09%, respectively. The yield on the 20-year Treasury bond is 9.13%.
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However, just three months ago, in May, rates on all Treasury bills and bonds were still in double digits. They began to decline in June, and this week, yields across all Treasury bills and bonds fell below 10%.
Bankers attributed the decline mainly to two factors: substantial excess liquidity in the banking system and weak demand for private-sector loans.
Leading banks are also holding large amounts of excess liquidity. Deposits at these banks grew by around 11.5% in the year through May.
Bangladesh Bank data show that banks' surplus funds increased by Tk1,39,289 crore to Tk4,08,000 crore in June, from Tk3,27,877 crore in May. The amount stood at Tk3,77,235 crore in April and Tk3,78,134 crore in March.
Deposit growth has turned positive after banks raised deposit interest rates, which remained attractive to customers until July this year.
The other factor is strong demand for Treasury bills among banks and other financial institutions, which regard them as one of the most profitable options for short-term investment.
Investments in Treasury bills offer interest rates of more than 9%, providing a relatively certain source of returns. As a result, several leading banks that have attracted significant deposits in recent months are investing in Treasury bills, driving down yields.
With deposit growth picking up, many leading banks have cut their deposit rates by between 50 and 100 basis points since August.
