Credit ebb, remittance surge signal G-Sec yield contraction

Dampened credit demand, particularly from private business, and higher remittance inflows signal an oncoming downturn in the yields on government securities (G-Sec), bankers predict.
The yields on G-Sec, like Bangladesh Government Treasury Bonds (BGTBs) and Treasury Bills (T-bills), have already seen slight fall in most recent auctions -- held on September 8 and September 10.
On September 10, the yield on Five-Year BGTBs declined marginally, as banks showed preference to invest surplus funds in long-term securities. The cut-off yield on BGTBs edged down to 12.37 per cent from 12.40 per cent, according to auction results.
Similarly, the yield on 91-Day T-bills decreased to 11.53 per cent on September 8 from 11.58 per cent, driven down by similar factors.

"The higher inflow of remittance has boosted banks' deposit growth," the treasury head of a leading private commercial bank (PCB) told the FE on Wednesday.
Remittances surged nearly 39 per cent in August, the first month under the interim government, amounting to $2.22 billion compared to $1.60 billion in the same month a year earlier. The figure for July 2024 was $1.91 billion.
The inflow of remittances rose by nearly 16 per cent to $4.13 billion during the July-August period of financial year (FY) 2024-25, from $3.57 billion in the same period a year earlier, according to latest Bangladesh Bank (BB) data.
The treasury head also forecasts a further significant fall in G-Sec yields during the second half (H2) of the current fiscal year, if the government downsizes the national budget by approximately Tk 1.0 trillion.
The interim government plans to eliminate unnecessary projects included in the FY'25 budget under the deposed Awami League regime.
Economic managers of the interim government believe that this initiative could reduce the FY'25 budget by around Tk 1.0 trillion.
Another senior treasury official from another PCB mentions that banks are increasingly compelled to invest their excess funds in G-Sec due to sluggish credit demand, particularly from the private sector.
"Many businesses are adopting a wait-and-see approach before making new investment in various sectors," the official explains about a sort of procrastination following an abrupt fall of the AL government in a student-mass upsurge.
Private-sector-credit growth slowed to 9.84 per cent year on year in June 2024, down from 10.35 per cent in May, according to the BB data. This figure was 0.16 percentage points below the central bank's target of 10 per cent for the second half of FY 2024.
Currently, five government treasury bonds, with tenures of two, five, 10, 15 and 20 years respectively, are traded on the market.
Besides, four T-bills are transacted through auction to adjust government borrowings from the banking system. The T-bills have 14-day, 91-day, 182-day and 364-day maturity periods.
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