Yields on treasury bonds fell below the central bank's policy rate on Tuesday, as banks channelled surplus liquidity into government securities amid subdued private credit demand ahead of the national elections.
The cut-off yield, commonly referred to as the interest rate, on 15-year Bangladesh Government Treasury Bonds (BGTBs) dropped to 9.67 per cent from 10.28 per cent earlier, while the yield on 20-year BGTBs declined to 9.70 per cent from 10.38 per cent, according to auction results.
At present, the central bank's policy rate, or repo rate, stands at 10 per cent.
Nevertheless, the government raised Tk 20 billion on the day through the issuance of long-term BGTBs to partially finance its budget deficit.
Yields on long-term treasury bonds have been declining since July 2025, driven by rising liquidity inflows into the market and lacklustre credit demand from both the public and private sectors, according to market operators.
On 29 July, the yield on 15-year BGTBs fell to 10.48 per cent from 12.59 per cent, while the yield on 20-year bonds declined to 10.55 per cent from 12.49 per cent.
"A section of banks are choosing to invest their excess funds in risk-free government securities, mainly due to weaker private sector credit demand ahead of the national election," a senior Bangladesh Bank (BB) official told The Financial Express, explaining the prevailing market dynamics.
Private sector credit growth stood at 6.52 per cent in July 2025 on a year-on-year basis, compared with 6.49 per cent a month earlier, reflecting waning business confidence and tighter lending conditions.
In addition, the government's relatively lower borrowing requirements have contributed to the decline in bond yields, the BB official added.
Meanwhile, interventions by the central bank-through purchases of US dollars from banks-have also boosted liquidity inflows into the market, according to the central banker.
Since 13 July, the BB has directly purchased $1.88 billion from banks under the free-floating exchange rate regime, according to its latest data.
Currently, five types of government bonds, with maturities of two, five, 10, 15 and 20 years, are actively traded in the market.
Alongside these, four treasury bills (T-bills)-with maturities of 14, 91, 182 and 364 days-are auctioned to manage the government's short-term borrowing needs from the banking system.
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