Govt revising yield rates on govt-approved securities

FE Team | Published: October 08, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

Siddique Islam
The Bangladesh Bank (BB) continues to revise the yield rates on government approved securities aiming to reduce spread between the interest rates on short-term and long-term securities.
Under the move, the yield rates on long-term government approved securities have gradually declined while the interest rates on short-term securities have gone up slightly.
The declining trend of interest rates on long-term government bonds indicates that the economic managers are planning to curb inflationary pressures on the economy on a long term basis.
"We have an intention to dampen inflationary expectation through revising the interest rates on government-approved securities," a BB senior official told the FE Sunday.
He also said the central bank is trying to reduce gap between the interest rates on short-term securities and long-term government bonds in line with its monetary policy.
"In order to dampen inflationary expectation, it may be prudent to reduce the gap. This may be done by changing to short-term interest rates and developing secondary market of the government securities leading to lowering of yield on long term bonds," the central bank said in its fourth monetary policy, released on July 12, 2007.
The central bank has been continuing to pursue cautious, restrained monetary policy since the second half of 2005 with a view to "curbing excess demand from inflationary expectations".
Treasury officials, however, are expecting the yield rates on the long-term securities like the four government approved bonds to increase further by the early 2008 after adjustment in mismatch of funds in the market.
The maturity of five-year government treasury bills from August to November 2007 will be worth about Tk 40.00 billion while the government is expected to borrow around Tk 19.00 billion through issuing long-term bonds in line with the treasury auction calendar.
As a result, the yield rates on long-term government bonds gradually decreased in the recent months, the treasury official said.
"It's a problem of mismatch of fund in the market," a senior treasury official of a commercial bank told the FE, adding that the yield rates on long-term government bonds will move further by February next.
Some commercial banks purchased five-year government treasury bills in 2002 to maintain their statutory liquidity ratio (SLR) with the central bank. But the banks are now interested to divert their investment to other long-term portfolios, sources in the banking sector said.
The yield, generally known as interest rate, on five-year Bangladesh Government Treasury Bond (BGTB) decreased to 10.74 per cent in September last against 10.80 per cent in the previous month. The yield rate on 10-year BGTB also declined to 11.95 per cent in September last as compared to 12.15 per cent in August 2007, according to the central bank statistics.
The yield rates on 15-year and 20-year BGTDs also fell during the period, according to the treasury officials.
On the other hand, most of the banks did not show interest to invest in the short-term securities mainly due to lower interest rates that do not match their cost of funds.
The interest rates on such short-term securities are hovering between 7.29 per cent and 8.48 per cent, but the cost of funds on an average is over 10 per cent, the sources noted.
Currently, four treasury bills (T-bills) are being transacted through auctions as monetary tools to adjust the government borrowing from the banking system.
The T-bills have 28-day, 91-day, 182-day and 364-day maturity periods.