Government borrows cheaper as yields on treasury-bonds fall

The interest rate on Bangladesh Government Treasury Bonds (BGTB) slumped Tuesday as commercial banks rushed to stake their huge liquidity on auctions of the secure tools.
Treasury officials said the yield, generally known as coupon interest rate, of the 15-year BGTB dropped to 10.06 per cent on the day from 11.40 per cent of the previous auction, held on April 28 last.
Besides, the yield of 20-year BGTB came down to 10.36 per cent from 11.97 per cent of the previous auction, held on April 28, according to the central bank statistics.
The government borrowed Tk 12.50 billion from the scheduled banks through issuing its long-term treasury bonds on the day to finance budget deficit partly.
"The yields of the BGTBs have been fixed in line with the market demand," a senior official of the Bangladesh Bank (BB) told the FE, without elaborating.
Talking to the FE, a senior treasury official of a leading private commercial bank (PCB) said most banks quoted lower interest to invest their excess liquidity in the government-approved long-term securities to minimise their cost of funds.
The private banker also said around 20 commercial banks are still facing burden of liquidity glut following the suspension of treasury-bond auctions by the government in May and June.
Earlier on May 04, the government suspended the auction of treasury bonds for the months of May and June for proper cash management.
The demand for such securities has increased significantly mainly due to the lower interest rates on call money on the inter-bank market, the treasury official mentioned to explain the switchover.
The call rates ranged between 5.25 per cent and 6.50 per cent Tuesday--unchanged from the previous level.
However, most of the deals were settled at rates varying between 5.50 per cent and 6.0 per cent, according to market operators.
The overall excess liquidity with the commercial banks stood at around Tk 1.04 trillion, as of June 02 last.
But major portion of the funds has been invested in the risk-free government securities, another BB official said about the latest developments in banking.
The central banker also said excess reserves, generally known as excess over daily minimum cash reserve requirement (CRR) with the central bank, stood at around Tk 32 billion.
"We're mopping up excess funds from the market using our reverse REPO (repurchase agreement) auction tool to keep the money market stable," the BB official noted.
The BB withdrew Tk 176.78 billion at 5.25 per cent from the market through reverse REPO auction Tuesday. It was Tk 172.95 billion Monday.
Five government bonds with duration of two, five, 10, 15 and 20 years respectively are being traded on the money market.
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