Bangladesh Bank Tuesday binned all bids for its treasury bonds as investors asked for higher yields amidst the BB move for relaxing interest rates.
On the day, there was an auction held at the central bank for government borrowing of Tk 10 billion-5.0 billion with 15-year bonds and 5.0 billion against 20-year bonds.
"The commercial banks asked higher yields than last week's, so the government showed reluctance to go with the high rates," said one central banker.
Usually, the central bank does not reject offers as the BB itself buys at a time when none shows interest in investing. Even, the BB did not devolve it.
The BB refused to award any bidder as the government did not show any interest in higher yields.
The finance division has one representative on the auction committee.
The commercial banks sought a nearly 9.0-percent yield on the two long-term bonds.
On March 15 last, auction for a 15-year bond was quoted at 8.7 per cent and 20-year at 8.8 per cent.
The primary-market participants are 24 banks and non-banks which are called primary dealers. The primary dealers later trade such securities in the central bank-controlled MI module. And it should be ultimately traded on the DSE secondary market.
Another central banker told the FE that the government is showing reluctance about such a higher rate as it will give a signal in the market and the government interest expense will increase.
During the first half of the FY23, interest expenses of the government amounted to Tk 407.92 billion, which is exactly half the annual budget.
For the domestic part, interest expense was higher than the annual target because of higher interest rates for government securities prevailing on the market.
The government has a target for over Tk 1.0 trillion from the banking system for this fiscal. During the first six months of the fiscal year it (the government) borrowed Tk 92.48 billion through treasury bills and Tk 161.97 billion through treasury bonds.
The finance division said the yields on different instruments are relatively higher than the later quarter of the fiscal year, especially the short-term instruments, indicating the liquidity crunch of the financial system.
It also notes one of the reasons for the liquidity shortage is the exchange-rate depreciations which led to the current-account-balance deficit significantly in the 1st half of the fiscal year.
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