Interest rate on Treasury Bonds falls sharply

The interest rate on the Bangladesh Government Treasury Bonds (BGTBs) felt significantly Tuesday, as commercial banks rushed to offer bids in the auction, treasury officials of commercial banks said.
The yield, generally known as interest rate, on 10-year BGTBs came down to 11.33 per cent on the day from 11.59 per cent of the previous auction, held on July 15 last, according to them.
"The yield on the BGTBs was fixed in line with the market demand," a senior official of the Bangladesh Bank (BB) told the FE without elaborating.
Eighty bids amounting to Tk.24.78 billion were offered against pre-targeted amount of Tk.4.0 billion for the 10-year BGTBs auction (re-issue) with 11.59 coupon rate.
Of those, 21 bids amounting to Tk.4.0 billion were accepted, according to the auction result.
The cut-off price of the accepted bid was Tk.101.3816 (per Tk 100.00), it added.
The treasury officials of commercial banks also said the demand for such government approved securities has sharply risen mainly due to higher excess liquidity, held by the commercial banks because of lower credit demand in the recent months.
"Some banks have quoted lower interest rates aggressively to invest their excess liquidity in the risk-free government securities to minimise their cost of funds," a senior treasury official of a leading private commercial bank (PCB) told the FE.
Currently, the overall excess liquidity with the commercial banks stood at more than 1.0 trillion out of which most of funds have been invested in the government securities.
Sluggish trend of investment has forced the banks to invest their excess funds in the long-term government treasury bonds with lower yield, the treasury official explained.
"Such a declining trend of yield may continue in the coming months if lower demand for local currency denominated loan continues," the private banker noted.
He also said most of the corporate entities now prefer to borrow foreign currency denominated loans from overseas sources with lower interest rate.
Currently, three treasury bills (T-bills) are being transacted through auctions to adjust the government's borrowing from the banking system. The T-bills have 91-day, 182-day and 364-day maturity periods.
Furthermore, five government bonds with duration of two, five, 10, 15 and 20 years respectively - are being traded in the market.