Two-yr bond yield jumps on weak demand

The yield on two-year treasury bonds increased significantly on Tuesday, as banks showed reluctance to invest their surplus funds in government securities in an effort to manage their portfolios more efficiently.
The cut-off yield, generally known as the interest rate, on Bangladesh Government Treasury Bonds (BGTBs) rose to 10.73 per cent on the day from 10.23 per cent earlier, according to auction results.
"Most banks prefer to invest their excess liquidity in shorter-tenure government securities rather than bonds," a senior treasury  official at a leading private commercial bank told The Financial Express (FE), commenting on the current market scenario.
The banker also predicted that the current trend in yields on government securities may continue in the coming weeks.
On the day, the government raised Tk 40 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 FRTB also rose to 10.82 per cent on the day from 10.60 per cent earlier. The FRTB is a bond whose coupon 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. It serves as a reference rate primarily used to set returns on the government's floating-rate instruments. Currently, five government bonds, with tenures of two, five, 10, 15 and 20 years, are traded in the market.
In addition, four treasury bills are auctioned to adjust government borrowings from the banking system, with maturities of 14 days, 91 days, 182 days and 364 days.
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