Treasury bill yields rise as govt ramps up bank borrowing

Treasury bill yields rose over the past week as increased government borrowing from banks, driven by mounting funding needs and weak revenue collection, put upward pressure on short-term interest rates.

According to data from the latest auction held today (12 April), yields on 91-day, 182-day and 364-day treasury bills increased by 31 to 33 basis points compared with the previous week. The yield on 91-day bills climbed to 10.16%, while 182-day bills rose to 10.33% and 364-day bills reached 10.39%.

A week earlier, on 6 April, yields stood at 9.85% for 91-day bills, 10.01% for 182-day bills and 10.08% for 364-day bills.

A senior official of a private bank said the rise in yields was primarily due to higher government borrowing from the banking system. "The government is facing a shortage of funds in its treasury, while revenue collection remains below target. As a result, it has increased its reliance on bank borrowing," he told TBS.

In addition to the regular auction calendar, the central bank conducted off-calendar auctions this month, raising Tk10,000 crore through 91-day treasury bills in two separate tenors to meet immediate funding requirements.

Treasury bill yields had previously crossed 11.5% before declining to below 10% in February this year, largely due to improved liquidity in the banking sector.

Economists attribute the renewed upward trend to increased government spending following the formation of a new administration after the national election, including expanded social support programmes.

A central bank official said treasury bill and bond yields are determined by the liquidity conditions in the banking system. "When liquidity supply in banks exceeds government demand, yields decline. Conversely, when demand for funds is higher, yields increase," the official explained.

Bankers noted that although the banking sector is not currently facing a liquidity shortage, the government's higher borrowing requirement has begun to push rates upward.

For the April to June quarter, the government plans to borrow Tk1,10,000 crore through treasury bills, including Tk44,000 crore in 91-day bills, Tk36,000 crore in 182-day bills and Tk30,000 crore in 364-day bills.

In addition, the government aims to raise Tk39,000 crore through treasury bonds to finance medium- and long-term needs.

Treasury bills are short-term government securities with maturities ranging from 91 to 364 days and are considered low-risk investments due to their fixed returns.

Treasury bonds, by contrast, are long-term instruments with maturities ranging from two to 20 years, through which the government raises funds for extended periods.