Yield on two-year Treasury bond hit a record-high 11.60 per cent Tuesday as credit-starved commercial banks bid for higher returns to gain maximum out of their squeezing resources, sources said.
According to the auction of 2-year T-bond held on the day at the Bangladesh Bank (BB) headquarters, the cut-off yield in the bidding on the government borrowing instrument (recorded at 11.60 per cent) was 140-basis-point higher than that of the previous bidding when the rate was 10.20 per cent.
"It is a record. I didn't see such higher rate for 2-year T-bond in my career here," said a BB official, preferring not to be quoted by name.
The government planned to borrow Tk 30 billion through the day's auction by issuing the short-term bonds but accepted bids amounting to Tk 12.71 billion with the cut-off yield kept at 11.60 per cent, the official said.
"If we allowed all bids, the rate would go past 12 per cent that we don't want as the lending rate in banking system is now around 12 per cent," the central banker said about the brake pressed on the boom.
Seeking anonymity, another BB official said the central bank, as part of its inflation-combating measures, skipped applying 'devolvement' instrument on its own and left government's bank-borrowing affairs to banks.
So, he added, the banks are now meeting full public bank-borrowing requirements, which put pressure on the excess liquidity with the commercial lenders.
On the other hand, the central bank keeps mopping up local currency from the banking system in the form of selling US dollar in assisting the banks in meeting their overseas-payment obligations amid the ongoing forex dearth, which further intensifies the liquidity stress.
"Now, the banks want to make maximum gain with the squeezing credits available. That's why they are offering extremely higher rate while the government needs money to meet its budgetary shortfalls," the official said.
The central banker said the rate in the long-term government securities would go up further in the days ahead.
The treasury head of a private commercial bank said they had no plan to purchase T-bond in Tuesday's auction and placed higher bid of 11.60 per cent. "But, luckily, our bid is accepted," he said.
The treasury expert notes that the government has focused more on short-term securities - treasury bills--where the rate was comparatively higher.
But with the strategy, the government cannot fulfill its net borrowing- growth target from short-term T-bills--the government needs to repay in a short period of time.
As the yield reached higher levels, the commercial banks might skip lending to the private sector for higher gains from the public securities where there are no risk of NPL (non-performing loan), he said.
"Predicting treasury operations is extremely difficult now because the yield keeps changing too frequently," the treasury official said.
Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank (MTB) PLC, says the government has limited options to get funds in meeting the budget-financing deficits due to lack of expected level of revenue generation.
"If the upward trend continues in the coming months, there could be a crowding-out effect after the general election when the demand for credits by the private sector is expected to rise," he forecasts.
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