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The yields on government securities (G-Sec) have continued to rise in recent days, as the banks are showing unwillingness to invest their excess funds in risk-free instruments.
The yields on two types of treasury bills (T-bills) increased significantly on Sunday on the same ground, bankers said.
The cut-off yield, generally known as interest rate, on 91-day T-bills rose to 2.99 per cent on the day from 2.25 per cent earlier, while the yield on 364-day T-bills reached 4.25 per cent from 3.64 per cent.
The government borrowed Tk 16.60 billion instead of the pre-auction target of Tk 20 billion on the day through issuing the T-bills - to meet its budget deficit partly.
They also said the yields on the G-Sec also moved up in the previous three auctions of this month.
The yield on Five-Year Bangladesh Government Treasury Bonds (BGTBs) rose to 6.25 per cent on March 15 from 5.81 per cent earlier, according to auction results.
On March 13, the yield on 91-day T-bills rose to 2.25 per cent from 2.14 per cent earlier, while the yield on 182-day T-bills reached 2.85 per cent from 2.68 per cent.
On the other hand, the yield on two-year BGTBs rose to 4.75 per cent on March 08 from 4.25 per cent earlier.
Most of the banks are maintaining a 'go-slow' policy to invest their excess liquidity in the G-Sec, as the lenders believe that the yields on the securities would go up further in near future, according to market insiders.
The pressure on liquidity in the market is expected to expedite in the coming months, as the demand for loans - particularly for trade financing - is growing for settling import payment obligations.
The banks are also convinced that the government's borrowing from the banking sector would increase in the final quarter, from April to June of the current fiscal year.
Normally, the government's bank borrowing rises in the last three months of every fiscal.
"Rising trend of private sector credit growth along with possible higher bank borrowing of the government may push up the yields on the G-Sec in the coming months," the treasury head of a leading private commercial bank (PCB) told the FE.
The private sector credit flow rose to 11.07 per cent in January 2022 on a year-on-year basis from 10.68 per cent a month before, mainly due to higher trade financing for settling import payment obligations.
Falling trend in surplus balance of the government's account helped enhance yields on the G-Sec, he explained.
"It's one of the most secure investments for the banks and non-banking financial institutions. It also does not eat up capital," Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank Limited, told the FE while replying to a query.
Meanwhile, the balance of the government's account came down to Tk 74 billion on March 14 from Tk 170 billion on February 27. It was Tk 98.85 billion on March 06.
"The banks are submitting bids in the auctions - quoting higher yields on the G-Sec, considering possible upward trend of the securities in the coming months," a senior official of the Bangladesh Bank told the FE while explaining the upward G-Sec trend.
He also said the yields on the G-Sec may remain stable or rise slightly in the coming months, if the inward remittance flow increases ahead of the Eid-ul-Fitr festival.
Currently, three T-bills are transacted through auctions to adjust the government borrowings from the banking system. The T-bills have 91-day, 182-day and 364-day maturity periods.
Furthermore, five government bonds with the tenures of 02, 05, 10, 15 and 20 years are traded in the money market.