The interest rate on Treasury bonds in Bangladesh is currently on a downward trend, a development attributed to the government’s reduced borrowing requirement, according to a recent report.
In the latest auction conducted by the Bangladesh Bank (BB) last week, the interest rates for 15-year and 20-year Treasury bonds dropped below the 10% mark. This followed a similar decline in the 10-year Treasury bond yield, which had also dipped below 10% in the preceding week.
Officials at the Ministry of Finance suggest that the combination of increased liquidity in the banking sector and lower demand for government borrowing is driving down the Treasury bond yields.
Auction Data Shows Significant Drop
According to data from the Bangladesh Bank, the interest rate for the 15-year Treasury bond settled at 9.67% in the auction held last week. Bonds worth ₹1,000 crore for this maturity were sold. Similarly, the interest rate for the 20-year Treasury bond decreased to 9.63%, with ₹1,000 crore worth of bonds being sold.
Just a week prior, the interest rate for the 15-year bond stood at 10.28%, and the 20-year bond rate was 10.30%. In the auction held two weeks ago, the 10-year Treasury bond yield had fallen to 9.89%, where more than ₹2,000 crore worth of bonds were sold.
Banker Insights on the Trend
Bankers indicate that the domestic banking sector is currently experiencing surplus liquidity. Additionally, the Bangladesh Bank is purchasing US dollars from the market through auctions to stabilize the foreign exchange market.
Simultaneously, the government’s dependence on borrowing through Treasury Bills and Bonds has decreased. This confluence of factors is cited as the reason for the drop in Treasury bond yields, and bankers anticipate that the rates for other Treasury Bills and Bonds may also decline in the near future.
Government Borrowing Figures
In the Fiscal Year (FY) 2024-25, the government borrowed a total of ₹1,19,365 crore from domestic sources. This included ₹77,106 crore from banks and ₹42,259 crore from non-bank sources.
The amount borrowed from the banking sector was 22.10% lower than the target set in the revised budget for the last fiscal year. Furthermore, the government’s bank borrowing in FY 2024-25 was lower compared to the amount taken in FY 2023-24.
For the current FY 2025-26, the government has set a target to borrow ₹1,25,000 crore from domestic sources, with ₹1,04,000 crore expected to be sourced from the banking sector.
Reduced Spending at Start of Fiscal Year
Ministry of Finance officials explain that the government typically borrows less at the beginning of the fiscal year due to lower spending pressure. The first quarter of the current fiscal year is not yet complete, and spending on development projects is historically lower in the first and second quarters.
Moreover, the majority of the government’s operational expenses are met through tax revenue. Consequently, the government’s demand for credit naturally remains low during this initial period.
ET/RSP
