Yield on government treasury bonds (T-bonds) increased significantly on Tuesday following an upward trend in interest rates particularly on bank deposits.
High yield on the government securities may continue till July due to higher demand for liquidity ahead of Eid-ul-Fitr festival along with impact on closing of the fiscal year, according to officials and bankers.
The cut-off yield, generally known as interest rate, on 05-Year Bangladesh Government Treasury Bonds (BGTBs) rose to 7.46 per cent on the day from 6.99 per cent of the previous auction held on April 09, according to the auction results, published by Bangladesh Bank (BB).
"The yield on the BGTB was re-fixed in line with the market requirements on the day," a senior BB official told the FE.
An upward trend in overall interest rates is pushing up yield on the government securities, the central banker explained.
The government borrowed Tk 7.0 billion through reissuing its 05-Year BGTBs on Tuesday.
Senior bankers, however, said higher rates on deposits have pushed up the yield on the government securities that may continue in the coming months.
Currently, the interest rates on term deposits are now hovering between 9.0 per cent and 11.50 per cent, they added.
They also said the banks particularly fourth-generation private commercial banks (PCBs) prefer to purchase the government securities to maintain SLR (statuary liquidity ratio) with the central bank.
Currently, the required SLR is 13 per cent daily for the conventional banks and 5.5 per cent daily for the Islamic Shari'ah-based banks of their average total demand and time liabilities.
Besides, different institutions including insurance companies and deposit insurance trust are also buying the government securities for maintaining regulatory requirements and compliance with trust act, according to a senior private banker.
Talking to the FE, an official familiar with the government debt-management activity, said an upward trend in the government bank borrowing may continue till June to meet its budgetary expenses.
The government used around Tk 20 billion as of May 12 borrowed under ways and means advances (WMAs) facility from the central bank on the same grounds.
The authorities are now empowered to borrow up to Tk 40 billion from the central bank under such facility to meet its day-to-day expenditures without issuing any securities.
The government is also entitled to borrow a maximum of Tk 40 billion under overdraft (OD) drawing facility from the central bank on the same grounds.
"But the government has yet to avail such facility from the BB," the central banker noted.
On the other hand, the government has already revised its auction calendar for the month of May with keeping Tk 40 billion extra borrowing arrangement to meet its budget deficit.
As per the revised calendar, issued by the BB on Monday, the government may take up to Tk 88 billion as gross borrowing from the banking system this month by issuing treasury bills (T-bills) and bonds.
The government's net bank borrowing is set to reach Tk 67.25 billion at the end of this month, after deducting Tk 30.75 billion as maturity amount of the government securities from the gross borrowing amount, according to the central banker.
Currently, four T-bills are transacted on auction to adjust government borrowing from the banking system. The T-bills have 14-day, 91-day, 182-day and 364-day maturity period.
The T-bills are short-term investment tools issued through auctions, conducted by the central bank on behalf of the government.
Five government bonds, with the tenure of 02, 05, 10, 15 and 20 years respectively, are also traded on the money market.