The yield on 10-year treasury bonds declined on Tuesday as the central bank purchased an additional US$45 million from two banks in a bid to stabilise the exchange rate of the US dollar against the local currency.
According to auction results, the cut-off yield, generally regarded as the interest rate, on Bangladesh Government Treasury Bonds (BGTBs) fell to 10.49 per cent from 10.87 per cent earlier.
"A significant number of banks are showing interest in investing their excess liquidity in government securities, as private-sector credit demand remains weak ahead of the upcoming national polls," a senior Bangladesh Bank (BB) official told The Financial Express (FE), explaining the latest market developments.
He added that higher remittance inflows, combined with the central bank's purchases of US dollars, have improved overall market liquidity, thereby exerting downward pressure on bond yields.
The central banker also indicated that the prevailing downward trend in government securities yields may continue in the coming weeks.
On the day, the government raised Tk 30 billion through the issuance of BGTBs to partially finance its budget deficit.
Currently, five government bonds with tenures of two, five, 10, 15 and 20 years are traded in the market. In addition, four treasury bills (T-bills) are issued through auctions to manage government borrowing from the banking system. These T-bills have maturities of 14 days, 91 days, 182 days and 364 days.
Market operators noted that the central bank's purchases of US dollars injected local currency, the Bangladesh taka (BDT), into the market, further contributing to the decline in bond yields.
As part of its ongoing open market operations, the central bank on Tuesday bought an additional US$45 million from two banks through an interbank spot market auction to help stabilise the US dollar-BDT exchange rate.
The purchase was conducted under the Multiple Price Auction method, with a cut-off rate of Tk 122.30 per dollar, according to central bank officials.
Bangladesh Bank has so far purchased US$3.88 billion directly from banks since July 13 last year under the prevailing free-floating exchange rate regime, BB data show.
Another BB official told The FE that the central bank's dollar purchases are aimed at stabilising the exchange rate while supporting export competitiveness and remittance inflows.
"Such interventions are also gradually helping rebuild the country's foreign exchange reserves," the official said.
Meanwhile, Bangladesh's gross foreign exchange reserves rose to US$32.62 billion on January 15 this year from US$32.44 billion on January 8, according to the central bank's traditional calculation.
Under the International Monetary Fund's Balance of Payments and International Investment Position Manual, sixth edition (BPM6), reserves stood at US$28.03 billion, up from US$27.84 billion over the same period.
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