The interest rate on Bangladesh Government Treasury Bond (BGTB) increased slightly on Tuesday as banks were least interested in buying the instruments.
The yield, generally known as coupon interest rate, of the two-year BGTB rose to 7.80 per cent from 7.68 per cent of the previous auction, according to officials.
The government borrowed Tk 30 billion from scheduled banks through issuing its treasury bond on the day to finance budget deficit partly.
"Banks quoted higher interest rates on the bonds as the government has announced a hefty borrowing target for this month," a senior official of Bangladesh Bank (BB) told the FE.
The government is set to make a net borrowing of nearly Tk 142 billion from the banking system in June, the last month of this fiscal, to meet budget deficit.
It may take up to Tk 260 billion as gross borrowing in June by issuing treasury bills (T-bills) and bonds, according to the auction calendar issued by the BB recently.
The government's net bank borrowing may reach Tk 141.80 billion in a single month (June) after deducting Tk 118.20 billion against government securities that would be mature this month.
The auction calendar includes the schedule and amount of T-bills and bonds to be issued through the auction for raising funds from the market.
"The government has to borrow more from the banking system mainly due to lower revenue collection along with a downtrend in sales of national savings certificates," the central banker explained.
Senior bankers, however, predicted that the rising trend of yield on government securities may continue until second week of July because of higher bank borrowing of the government.
"Most banks are not interested in investing more particularly in long-term government securities as the central bank has already enhanced advance-deposit ratio (ADR) limit," said a treasury head of a leading private commercial bank.
Earlier on April 12, the BB increased ADR limit by 2.0 percentage points to help banks implement the ongoing stimulus package through investing more in different sectors.
The ADR has been re-fixed at 87 per cent for all conventional banks instead of 85 per cent earlier.
Such limit has been revised at 92 per cent for Shariah-based Islami banks from 90 per cent.
Currently, three T-bills are being transacted through auctions to adjust government borrowing from the banking system.
The T-bills have 91-day, 182-day and 364-day maturity periods.
Furthermore, five government bonds with tenures of 02, 05, 10, 15 and 20 years respectively are traded on the money market.