Bond yields climb as banks hold back

Yields on two types of long-term treasury bonds rose sharply on Tuesday, as banks showed reluctance to invest their surplus funds in government securities in an effort to manage their portfolios more efficiently.

According to auction results, the cut-off yield, effectively the interest rate, on 15-year Bangladesh Government Treasury Bonds (BGTBs) increased to 10.08 per cent from 9.67 per cent, while the yield on 20-year BGTBs rose to 10.30 per cent from 9.70 per cent.

Despite the higher yields, the government raised Tk 20 billion on the day through the issuance of long-term BGTBs to partly meet its budget deficit.

"Most banks are reluctant to invest their excess funds in long-term government securities as part of their efforts to manage portfolios more efficiently," a senior treasury official at a leading private commercial bank (PCB) told The Financial Express, explaining the latest market situation.

He added that liquidity pressure in the market has intensified mainly due to higher letters of credit (LC) payment obligations in recent days.

The treasury official predicted that the current trend of rising yields on BGTBs may persist in the coming weeks.

At present, five types of government bonds, with tenures of two, five, 10, 15 and 20 years, are traded in the market.

In addition, four types of treasury bills (T-bills) are auctioned to manage short-term government borrowing from the banking system. These have maturity periods of 14, 91, 182 and 364 days, respectively.

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