Yield on government securities took a downturn under a buying spree, especially as banks invest their excess funds in the instruments to reap double benefits.
According to officials and market operators, particularly new private commercial banks (PCBs) are purchasing the bills and bonds to maintain SLR (statuary liquidity ratio) with the Bangladesh Bank (BB).
They said most of the banks are now interested to invest their excess money in the risk-free government securities also to minimise their cost of funds.
The yield, generally known as interest rate, on seven securities out of eight decreased slightly during the September 04-24 period against the previous auctions, they added.
Meanwhile, the volume of excess liquidity rose to Tk 1.10 trillion as on July 20 last from Tk 1.06 trillion in the last week of June, according to the central bank officials.
However, excess reserves, generally known as excess over daily minimum cash reserve requirement (CRR), with the central bank rose to around Tk 50 billion during the period under review from previous sum of Tk 45 billion.
"The amount of excess liquidity in the country's banking system increased slightly during the period mainly due to lower bank borrowing by the government," a BB senior official told the FE while explaining the overall liquidity situation on the money market.
Such rising trend in excess liquidity in the banking system may continue in the near future, the central banker hinted.
The Ministry of Finance earlier had suspended its fresh borrowing from the banking system through cancelling auctions of its securities since July 23 till August 31 for ensuring proper cash management.
Besides, the government injected around Tk 20 billion into the market through making payments against maturity of the BGTBs in August, according to the BB officials.
The yield on seven securities out of eight decreased slightly during the September 04-24 period against the previous auctions, according to the official figures and market operators.
The cut off yield on 91-day treasury bills (T-bills) came down to 3.80 per cent on September 24 from 3.86 per cent of the previous auction held on September 17 while the rate on 182-day T-bills stood down at 4.02 per cent from 4.10 per cent.
Besides, such yield on 364-day T-bills fell to 4.28 per cent on September 17 from previous 4.33 per cent, according to the central bank statistics.
However, the interest rate on 02-Year Bangladesh Government Treasury Bonds (BGTBs) dropped to 4.94 per cent on September 05 from 5.10 per cent on July 04, 2017 while such rate on 05-Year BGTBs came down to 5.84 per cent on September 12 from 5.93 per cent.
On the other hand, the yield on 10-Year BGTBs rose to 6.99 per cent on September 19 from 6.96 per cent on July 18, 2017.
The auction of other BGTBs -15-Year and 20-Year - is scheduled to be held at the central bank headquarters in Dhaka on September 26, according to the auction calendar, issued by the BB earlier.
"Some banks prefer to buy the government securities to meet SLR requirement with the central bank," a senior treasury official of a leading private commercial bank told the FE while replying to a query.
Currently, the requisite 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.
Talking to the FE, a senior official familiar with the government debt- management activity said the borrowing from the banking system by the government may decrease slightly in next month because the excess liquidity with government account now stood at around Tk 15 billion.
The government is set to borrow around Tk 98 billion in the month of September through issuing or re-issuing BGTBs and T-bills to make up for its current budget deficit partly.
Government's net borrowings from the banking system will stand at Tk 20 billion by the end of this month after making repayment of Tk 78 billion against maturities of its securities, the official added.
Currently, four T-bills are transacted on auction to adjust government borrowings from the banking system. The T-bills have 14-day, 91-day, 182-day and 364-day maturity periods.
These bills are short-term investment tools issued through auctions, conducted by the central bank on behalf of the government.
Furthermore, five government bonds, with tenures of 02, 05, 10, 15 and 20 years respectively, are traded on the money market.