The yield on two-year treasury bonds fell further on Tuesday as the central bank purchased an additional US$171 million from 16 banks, aiming to keep the exchange rate of the US dollar against the local currency stable.
The cut-off yield, generally referred to as the interest rate, on Bangladesh Government Treasury Bonds (BGTBs) declined to 10.46 per cent on the day from 10.51 per cent earlier, according to auction results.
Previously, on January 6, the cut-off yield on the BGTBs had fallen to 10.51 per cent from 10.72 per cent earlier on the same grounds.
"A good number of banks are now parking excess liquidity in government-approved securities as private sector credit demand remains weak ahead of the upcoming national election," a senior Bangladesh Bank (BB) official told The Financial Express, explaining the latest market developments.
He added that higher remittance inflows, coupled with the central bank's purchases of US dollars, have improved market liquidity, helping ease yields on government securities.
The central banker also predicted that the current downward trend in yields on government securities may continue in the coming weeks.
On the day, the government raised Tk 25 billion through the issuance of BGTBs to partially finance its budget deficit.
In addition, the government borrowed Tk 5.0 billion on the same day by issuing Three-Year Floating Rate Treasury Bonds (FRTBs).
The cut-off yield on the FRTBs also declined to 10.58 per cent from 10.67 per cent earlier.
The FRTB is a bond whose coupon rate is determined by adding a spread to the benchmark 91-day Bangladesh Compounded Rate (BCR).
The BCR is a daily rate based on the cut-off yield of 91-day Treasury Bill (T-bill) auctions.
Market operators, however, said the central bank's purchases of US dollars injected liquidity into the market in the form of Bangladesh taka (BDT), pushing bond yields lower.
As part of its ongoing open market operations, the central bank on Tuesday bought an additional US$171 million from 16 banks through an interbank spot market auction to help stabilise the exchange rate of the US dollar against the BDT.
The amount was purchased under the Multiple Price Auction method, with a cut-off rate of Tk 122.30 per dollar, according to central bank officials.
Meanwhile, Bangladesh's gross foreign exchange (forex) reserves rose to US$33.24 billion on February 2 this year from US$33.18 billion on January 29, based on the central bank's traditional calculation method.
Under the International Monetary Fund's Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6), the forex reserves stood at US$28.75 billion during the period under review, up from US$28.68 billion earlier.
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