2-year T-bond yields surge

Yields on two-year treasury bonds increased notably on Tuesday as banks showed reluctance to invest their surplus funds in government securities to manage their portfolios more efficiently.

The cut-off yield, generally known as the interest rate, on Bangladesh Government Treasury Bonds (BGTBs) rose to 10.10 per cent from 9.44 per cent earlier, according to auction results.

"Most banks are hesitant to invest their excess liquidity in the bonds, as the volume of such funds has been gradually decreasing," a senior Bangladesh Bank (BB) official told The Financial Express, commenting on the current market scenario.

He also said the comparatively higher bank borrowing of the government for the second quarter of the current fiscal year (FY) 2025-26 has pushed up yields on both treasury bills and bonds.

However, the government borrowed Tk 40 billion instead of Tk 35 billion through the issuance of BGTBs on the day to partly meet its budget deficit, according to the central banker. Additionally, the government borrowed Tk 5.0 billion on the same day through issuing three-year Floating Rate Treasury Bonds (FRTBs).

The cut-off yield on the FRTB also rose to 10.95 per cent from 10.70 per cent earlier.

The FRTB is a bond whose coupon rate is determined by adding a spread to the benchmark 91-day Bangladesh Compounded Rate (BCR).

The BCR is a daily rate based on the cut-off yield of 91-day Treasury Bills (T-bills) auction. It serves as a reference rate primarily used to set the rate of floating-rate instruments issued by the government.

Currently, five government bonds, with tenures of two, five, 10, 15 and 20 years, are traded on the market.

In addition, four Treasury Bills (T-bills) are auctioned to adjust government borrowings from the banking system. The T-bills have 14-day, 91-day, 182-day and 364-day maturity periods.

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