Banks shift to short-term treasury bills

Yields on treasury bills (T-bills) showed a mixed trend on Sunday as banks chose to invest their excess liquidity in lower-tenure securities rather than higher-tenure ones ahead of the national elections.

The cut-off yield, generally regarded as the interest rate, on the 91-day T-bills fell to 10.07 per cent from 10.09 per cent, while the yield on the 182-day T-bills declined to 10.15 per cent from 10.30 per cent.

In contrast, the yield on the 364-day T-bills increased to 10.10 per cent from 10.04 per cent previously, according to auction data.

"Most banks are not interested in parking their excess funds in long-term T-bills as they are trying to manage liquidity more efficiently ahead of the upcoming national election," a senior Bangladesh Bank (BB) official told The Financial Express (FE), explaining the latest market dynamics.

Despite the cautious sentiment, the government borrowed Tk 87.89 billion, against a pre-auction target of Tk 75 billion, through the issuance of all three types of T-bills on the day to help finance its budget deficit.

"Higher government funding requirements ahead of the national polls may push up yields on such securities in the near future," a senior treasury official at a leading private commercial bank told the FE.

He added that most banks still prefer to invest excess funds in short-term T-bills to avoid potential interest rate volatility during the election period.

The private banker also predicted that the current trend in yields on government securities is likely to continue in the coming weeks.

At present, four types of T-bills - 14-day, 91-day, 182-day and 364-day - are auctioned to manage government borrowing from the banking system.

In addition, five government bonds with tenures of two, five, 10, 15 and 20 years are actively traded in the market.

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