Govt gets tightfisted on rising treasuries' yields

The government seems to be tightening fist on rising yields from treasury bills in a bid to rein in bank-lending rates and price-fuelling inflation, after having offered generous bets.

Officials and experts say the strategy change of the government on interest regime becomes clear in very recent auctions of treasury bills where the auction committee only accepted bids within the target so the cut-off yields didn't increase further.

Among the investment instruments in government securities, treasury bills turn most lucrative segments wherein commercial lenders are seen putting maximum investment to book short-term gains under the current macroeconomic context.

If the rate on government securities rises consistently, the commercial banks would feel encouraged to invest more money in the risk-free instruments riding on the rate gains that would not only lead to crowding-out effect in the banking system but also create volatility in the interest regime.

Taking all factors into consideration, the government handles the auctions of treasury bills cautiously by holding the cut-off yields in check in recent trading.

According to the latest data with Bangladesh Bank (BB), the country's central bank, the cut-off yields on treasury bills for 91-day, 182-day and 364-day tenures marked an ascent in recent months to hit 11.75 per cent, 11.90 per cent and 11.99 per cent respectively on October 20, 2024.

Since then, auctions of the three types of the T-bills have taken place twice (October 27 and November 03) but the cut-off yield remained transfixed.

Seeking anonymity, a BB official says the cut-off yields in recent auctions of T-bills remained static because the auction committee is not allowing higher bids to keep the rate under control on the money market.

"If the auction committee allows rising trend in rates on treasury bills, it would definitely contribute to further increase in deposit and lending rates that would be hard for the private enterprises to absorb," the central banker says, explaining the finance arithmetic.

As the interim government decided not to take up any more projects, the BB official also mentions, the public funding requirements to execute annual development programme is not so high at the moment.

Responding to a question, the central banker said treasury bills became most attractive areas for investment to the banks as there is no limit. If the rate in the highly investment-prone segments rises, banks will lay more stakes thereon to make short-term gains. Against the investment, they would get more cash supports under the repo facility.

"It will aid raise in money inflow on the market, which could mount inflationary pressure," the official added.

According to the BB, the government projected to take Tk 438 billion through issuing government securities in this November. Of the amount, Tk 320 billion will come from the treasury bills.

Managing director and chief executive officer of Mutual Trust Bank (MTB) Syed Mahbubur Rahman says demand for formal credits from the private sector has been low for some time and it got further dented with the recent changeover. The economic activities have yet to resume completely in the post-uprising regime.

"Under such circumstances, the banks probably feel comfortable in investing in risk-free short-term instruments," the experienced banker says.

The treasury head of a private commercial bank, who prefers not to be quoted by name, says the strategy of most banks is to be extremely cautious in terms of approving loans in this critical period of time.

"We're hoping that the country's macroeconomic situation might start improving from January next from where we can project liquidity market more efficiently. That's why we're now emphasising short-term securities," he adds.

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