With the banks unwilling to invest their funds ahead of the December 30th national polls, yields on T-bonds (government treasury bonds) have increased notably.
The interest rate, or cut-off yield, on fifteen-year BGTBs (Bangladesh Government Treasury Bonds) rose up to 7.55% from 7.2% from the previous auction, last September, stated the Bangladesh Bank (BB).
The BB also stated that twenty-year BGTBs reported 8.24% interest rates, growing from 7.97% from the previous auction. A senior Bangladesh Bank official stated: “The yields on both BGTBs were re-fixed in line with the market requirement on the day”.
Through issuing the bonds to finance the budget deficit, the government borrowed Tk12 billion last Tuesday. This was done ahead of the parliamentary election. This increasing yield trend could be set to continue until the new government is fully in power.
In September, bank excess liquidity dropped by around 15% to about Tk800 billion from Tk940 billion. This has been attributed to the higher circulation of currency outside of the banking system prior to the polls.
The SoCBs (state-owned commercial banks) have particularly seen reduced excess liquidity, due in no small way to the central bank continuing to sell the US dollar.
In order to keep the foreign exchange market as stable as possible, the Bangladesh Bank has begun selling US dollars directly to the banks.
The BB sold $95 million directly to eight different SoCBs and commercial banks last Monday and Tuesday in order to meet the growing demand.
A senior official of a private commercial bank stated: “A substantial amount of liquidity has already reached the central bank’s vault in exchange for the recently-sold US currency”.
According to a BB official, approximately Tk67 billion entered the Bangladesh Bank vaults in exchange for almost $800 million.
Due to the higher import payment pressure, especially in regard to capital power plant machinery and petroleum products, market operators say the demand for the US dollar is set to keep gradually increasing.
The government has revised its auction calendar, keeping the option to borrow Tk20 billion more available. This was done on the 19th of November. The revised calendar’s borrowing is set to hit Tk30.42 billion. This is over Tk10 billion more than earlier.
This could be borrowed by issuing the right amount in bonds according to officials at the Bangladesh Bank. It was also stated that the calendar was revised in order to meet cash requirements ahead of the national polls.
The government uses T-bills (treasury bills) as a short-term investment tool, issued through central Bangladesh Bank auctions. Four T-bills are being auctioned in order to adjust government borrowing from the banks.
These T-bills have 14, 91, 182 and 364 day maturation periods. As well as that, five government bonds, with periods of 2, 5, 10, 15, 20 years are also being traded on the market.