Individual investment in T-bills, bonds declines despite surge in financial institution holdings

Highlights:

• Individual treasury investment fell Tk450 crore to Tk7,469 crore
• Retail investors held just 0.94% of government securities
• Higher yields previously boosted retail investment in treasury securities
• Falling treasury yields reduced their appeal versus bank deposits
• Banks increasingly offered competitive deposit rates, attracting retail savers
• Total government securities investment rose, driven by financial institutions

Individual investment in Bangladesh's treasury bills and bonds declined in FY26 for the first time in three years, even as overall investment in government securities rose sharply on the back of increased participation by banks, insurers, and other financial institutions.

According to Bangladesh Bank data, individual holdings of treasury bills and bonds fell by Tk450 crore to Tk7,469 crore at the end of FY26 from Tk7,919 crore a year earlier. Individual investors held just 0.94% of total government securities in FY26.

The decline marks a reversal from the previous two fiscal years. Individual investment stood at only Tk1,102 crore in June 2023, before rising to Tk3,974 crore by June 2024.

Infograph: TBS

Bankers said treasury bills have traditionally attracted more retail investors than treasury bonds because of their shorter maturities, ranging from three months to less than a year.

Retail participation in treasury bills and bonds began to rise from FY24 as yields increased. Higher returns encouraged greater investment from individuals, businesses and, in particular, banks, insurance companies and other financial institutions.

Even so, retail investment in government securities remains modest compared with bank deposits. Bankers attribute this to limited public awareness of treasury bills and bonds, as well as stronger public confidence in banks as a place to keep savings.

Yields on treasury bills and bonds started rising after Bangladesh Bank scrapped the 9% lending rate cap and introduced the SMART-based interest rate regime on 1 July 2023. 

They continued climbing and exceeded 12% at one stage in FY25. Bankers said retail investment in government securities had never reached such levels before.

A review of FY25 data shows treasury bill and bond yields hovered close to 12% in some months and surpassed that level in others. During the same period, banks offered deposit rates lower than bills and bonds, depending on the institution. As treasury yields were generally higher than deposit rates, many retail investors shifted funds into government securities.

The trend reversed in FY26 as treasury yields began to ease. As the gap with bank deposit rates narrowed, retail investment in treasury bills declined, while banks offered deposit rates of 9%-11%.

The situation has shifted again this August, with several leading banks cutting deposit rates by 50 to 100 basis points, while some reduced them even further. As a result, deposit rates at those banks have fallen to around 8.5% to 9%.

"Many banks offered deposit rates of 10.5%-11% in FY26, prompting retail customers to move their money back into bank deposits," said Mohammad Ali, managing director of Pubali Bank. 

"Retail investors generally seek the highest return over a relatively short period," he said. "Many banks were offering around 10% interest on three-month deposits, whereas treasury bills were not providing comparable returns at the time."

According to Bangladesh Bank data, the yield on 91-day treasury bills averaged around 10.52% in FY26, significantly lower than in the previous two fiscal years, when yields had peaked following the interest rate reforms.

Investment by banks, insurers, financial institutions rises

Despite the decline in retail participation, total investment in treasury bills and bonds climbed in FY26, reaching Tk7.95 lakh crore from Tk6.94 lakh crore a year earlier.

Bankers said the increase was driven primarily by banks, insurance companies and other financial institutions.

They said commercial banks have been allocating more funds to government securities as private sector credit demand remains weak. Bangladesh Bank data show private sector credit growth has remained subdued since August 2024, while growth stayed below 5% for four consecutive months from March to June.

With lending opportunities constrained, banks have increasingly turned to treasury bills and bonds as an alternative investment avenue, bankers added.