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The yield on five-year treasury bonds fell below the central bank's policy rate on Tuesday, as banks channelled surplus liquidity into government securities amid subdued private sector credit demand in the run-up to the national election.
According to auction results, the cut-off yield, or interest rate, on the Bangladesh Government Treasury Bonds (BGTBs) declined to 9.34 per cent from 10.03 per cent earlier.
This marks the first time in months that the yield has slipped under the Bangladesh Bank's (BB) policy rate of 10 per cent, signalling excess liquidity in the banking system.
The government borrowed Tk 30 billion through the issuance of the BGTBs to help finance its budget deficit, official data show.
"A good number of banks are showing interest in investing their surplus funds in government securities, supported by increased liquidity inflows into the market," a senior Bangladesh Bank (BB) official told The Financial Express.
The official attributed the liquidity surge partly to the central bank's ongoing foreign exchange interventions, which involve purchasing US dollars from commercial banks.
"In addition, lower private sector credit demand has pushed banks to invest more excess liquidity in government securities," the central banker added.
Private sector credit growth slowed further to 6.35 per cent year-on-year in August 2025, down from 6.52 per cent in July, reflecting weak business confidence and cautious lending ahead of the election.
The official also forecast that the downward trend in yields on government securities could continue in the coming weeks, given the current liquidity conditions.
Currently, five types of government bonds - with tenures of two, five, 10, 15 and 20 years - are traded in the market, alongside four treasury bills (T-bills) of 14-day, 91-day, 182-day, and 364-day maturities, used to manage short-term government borrowings.
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