Regulator to live-stream securities yield curves

The central bank is likely to go live with secondary money-market yield curves from next month, which would help stakeholders have tips about the country's current economic situation and act accordingly.

A yield curve is a line that plots yields, or interest rates, on bonds that have differing maturity dates, according to people familiar with the matter.

For over a year, the Bangladesh Bank (BB) has published yield curves on an experimental basis. And the banks usually do not use such experimental curves for their portfolio valuations.

Here, secondary market means MI module-based market where banks participate in transaction of government securities. On the primary market, some select banks can participate.

To make the yield curve more efficient, the central bank will also change some functions of the MI module and rename it as FMI (financial market infrastructure).

The BB will present live yield curves based on the FMI or secondary market daily.

The regulator will also let the banks use the live yield curves, according to central bankers.

The live YTM (yield to maturity) is not being used by banks rather they follow "cut-off yields".

Bankers say the BB has been trying for a long time to make yield curve of its secondary market. Once implemented, it will be a milestone for the financial market.

They also say that through the live yield curve, banks will know the trend of the market.

Md. Shaheen Iqbal, deputy managing director and head of treasury and financial institutions of BRAC Bank, hails this move to live-stream market function as good for the industry.

"We expect many jobs that are now being done manually will be automated under the FMI," the banker told the FE correspondent.

He said the live yield of treasury bonds would give an authentic picture of the market.

There are broadly three types of yield curves - normal, inverted, and flat.

A normal yield curve shows low yields for shorter-maturity bonds and then increases for bonds with a longer maturity, sloping upwards.

This curve indicates yields on longer-term bonds continue to rise, responding to periods of economic expansion.

An inverted yield curve slopes downward, with short-term interest rates exceeding long-term rates.

Such a yield curve corresponds to periods of economic recession, where investors expect yields on longer-maturity bonds to trend lower in the future.

A flat yield curve reflects similar yields across all maturities, implying an uncertain economic situation.

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