Government securities: Last fiscal’s yield curve witnesses steeper rise

Jasim Uddin Haroon | Published: December 05, 2018 10:32:51 | Updated: December 08, 2018 10:23:20


Picture used for illustrative purpose

The gap between short and long-term government fixed-income securities yields was steeper during fiscal year 2018 than its previous year, which indicated a 'tightened year" for money market.

The central bank has recently prepared the yearly chart of the yield curves.

This type of steeper yield curves represent that the treasury tools are more attractive than the banking instruments.

If the yield curves flatten the banking sector feels happy as people are lured into short term deposits.

However, treasury heads in banks said that this is based on the primary market and for this reason this does not reflect the market truly.

But they say that commercial banks are interested in the short-term treasury instruments.

On the other hand, economists view that the last fiscal year was "tighter" in terms of liquidity for the banking sector.

They said the central bank had adopted many measures to tackle the situation of the financial market in the year.

The Bangladesh Bank (BB) reviewed the advance deposit ratio and cash reserve requirement among other measures to handle the liquidity shortage then.

Dr Zahid Hussain, lead economist at the Dhaka office of the World Bank, said that the money market was tight in terms of liquidity.

"The banks were less interested in the long term instruments, for which the rate of yield climbed," Dr Hussain said.

He also said the primary dealers, who are eligible to participate in the auction, were active on short term bills, especially the 91-bills.

Ashim Kumar Saha, treasury head at the privately-owned Mercantile Bank, said banks invest in such type of bonds and bills when they have excess liquidity.

He also said the last fiscal's curves were steeper than the previous year but the yield on bonds and bills was much higher a few years back.

Motiur Rahman, treasury head at Prime Bank, said the BB needs to develop its secondary treasury bond market, which will give better picture of the financial market.

Currently, there is a secondary bond market meant for T-bills and T-bonds managed by the BB. Around 20 banks trade in the market, which lacks broader participation.

Mr Rahman said this is an indicator as it represents the primary market.

At the end of June 2018, the treasury auction (cut-off rate) yield curve exhibited an upward trend for all types of government treasury bonds except the two-year one compared to that of the June 2017.

The cut-off yield shows that the higher maturity bond (10 to 20 years) experienced a greater increasing trend in the yield rates compared to those of the lower-tenured bonds.

The cut-off yield in FY 2017-18 shows that T-bills with maturity of 91, 182 and 364 days experienced an increasing trend in contrast to the previous fiscal year.

jasimharoon@yahoo.com

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