Treasury bill yields near 10% amid higher govt borrowing

The interest rates on the country's three-tiered Treasury bills have risen close to 10% as the government seeks to borrow more from T-bills and bonds during the current October-December quarter from previous quarter.

At the auction held yesterday, yields across three tenures increased by 8 to 45 basis points. The 91-day Treasury bill yield stood at 9.52%, up from 9.44% the previous week. The 182-day bill rose to 9.97% from 9.63%, while the 364-day bill reached 9.99%, compared to 9.54% last week.

Treasury bills are short-term government securities issued for periods ranging from 91 to 364 days. Their yields generally depend on liquidity in the market and demand-supply dynamics.

Several senior bankers, treasury heads, and officials from the Bangladesh Bank told TBS that the recent increase in yields was largely due to higher government borrowing. 

A senior Bangladesh Bank official said, "The government has set a higher target for borrowing from Treasury bills and bonds for the December quarter compared to the previous quarter. For this reason, banks increased the rates quoted for Treasury bills on Sunday."

Interest rates on Treasury bills tend to rise when the government's borrowing demand increases or when there is a lack of supply against the borrowing. The government's net borrowing through Treasury bills and bonds is substantially higher in the December quarter compared to the September quarter.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, explained, "Government borrowing from Treasury bills has increased compared to previous periods. Consequently, banks have quoted higher rates. Additionally, the rise in LC payments has slightly increased pressure on the dollar market. If Bangladesh Bank purchases dollars again, liquidity could improve."

He added, "Previously, the market had excess liquidity due to dollar sales. Now, with reduced sales and increased government borrowing, banks are quoting higher rates. That is why yields have risen compared to earlier levels."

Mohammad Ali, deputy managing director of Pubali Bank, said, "Yields depend on the balance of supply and demand. When demand exceeds supply, rates go up. Some banks reduced their participation in the auction due to lower yields, and a few did not participate at all."

A treasury head at a private bank said that the previous decline in yields was partly due to excess liquidity with certain banks, resulting from the Bangladesh Bank purchasing over $2 billion from commercial banks. Additionally, funds had flowed from weaker Islamic banks to stronger banks, increasing liquidity and lowering deposit rates by up to 50 basis points at some institutions.

He said, "Yields on Treasury bills were slightly lower earlier, but current levels are more accurate. Government borrowing from Treasury bills and bonds will be higher in the December quarter from the September quarter."

Another senior treasury official at a private bank noted that in recent months, Treasury bill yields had fallen by 200-250 basis points, partly due to liquidity injections through Bangladesh Bank's repo operations. He added, "Banks also invest in Treasury bills as a safe investment option."