Interest rates on Treasury bills, bonds fall

Due to “increased interest” from banks, interest rates on Treasury bills and bonds have been reduced by 10 to 29 basis points.

According to information published on the Bangladesh Bank website, banks offered Tk 180 billion for the government-backed five-year bills and bonds at the latest auction on Tuesday. Of this, Tk 40 billion was raised through the auction at an interest rate of 12.09 per cent, reports bdnews24.com.

In the last auction on Jan 6, the interest rate on this bond was 12.38 percent. Accordingly, the interest rate on the bond has decreased by 29 basis points.

According to Bangladesh Bank, interest rates on Treasury bills have also decreased. On Monday, the interest rate on 91-day Treasury bills was 11.34 percent. Tk 35 billion was raised from the sale.

That same day, Tk 20 billion was raised at an interest rate of 11.68 percent on 181-day Treasury bills while another Tk 20 billion was raised from 364-day Treasury bills sold at 11.81 percent interest.

Treasury bills are short-term financial instruments issued by the government for a specific period.

These bills usually take one year or less to mature. They are also known as safe and low-risk investments because they are guaranteed to receive interest and are backed by the government.

Treasury bills and bonds can usually be purchased by any institution or individual. However, for the past few years, commercial banks have been investing their excess liquidity in treasury bills and bonds.

When the Treasury bill auction was held on Jan 6, the interest rate on the 91-day Treasury bill was 11.43 percent, for the 182-day bill it was 11.80 percent and for the 364-day bill, it was 11.95 percent.

The interest rates on these bills and bonds go down if the amount bid by banks at auctions is higher than the government’s demand for money. It goes up if the government wants to raise more money than banks are bidding.

A senior Bangladesh Bank official said, "Currently, the growth in bank deposits is low. However, good banks are receiving deposits. Banks that are financially sound already have much better liquidity than other banks."

He said, "Currently, the condition of several banks is bad. Many are withdrawing deposits from those banks. However, these customers are shifting their money to good banks. And good banks are also investing in Treasury bills and bonds."

Another central bank official said, "Bank lending to the private sector has decreased. As a result, there is money lying idle in banks. Those banks have chosen to invest in Treasury bills and bonds because investing in them leads to good returns."

He said, "The demand for loans has decreased. When disbursing loans, banks have to deposit a certain amount of money in the CRR and SLR sectors. Therefore, banks have increased their investment in Treasury bills and bonds."

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank Limited, or MTB, said, "The government has reduced its net borrowing and it is trying to reduce its expenses. And as the private sector's credit flow is low, banks are leaning towards investing in this sector [Treasury bills and bonds]."