Yields on Treasury bonds have once again crossed double digits as the government ramps up borrowing to finance its election pledges amid weak revenue collection.
The yield on 2-year Treasury bonds jumped to 10.23 per cent at Tuesday's auction, up from 9.73 per cent in March, while the 20-year bond yield rose to 10.61 per cent in March from 10.45 per cent in February this year.
"The rise in yield rates reflects efforts by the government to attract funds from banks and financial institutions," said Akramul Alam, head of research at Royal Capital.
At the same time, banks are more willing to park funds in government securities due to weak private-sector credit demand.
They have climbed back up since the newly elected government assumed office in February. The government has begun working on several election pledges of the ruling party, particularly expanding social support, which requires additional funds.
The government collected Tk 50 billion through 91-day Treasury bills last week and is set to borrow another Tk 50 billion through a special auction of 91-day bills on April 8.
This marks the second off-cycle borrowing by the government within a short span and may push total borrowing from the banking sector beyond the budgetary target for FY26.
The surge in borrowing comes as the government struggles to balance rising expenditure against weak revenue mobilisation.
Meanwhile, spending pressures have intensified, driven by emergency fuel oil imports as global energy prices surged against the backdrop of the US-Israeli war on Iran.
"Our tax collections are poor, so the government has no option other than T-bonds and T-bills to implement its budget," said Mr Alam.
The National Board of Revenue (NBR) missed its collection target by 28 per cent in the first eight months of FY26, leaving a shortfall of nearly Tk 715 billion, according to provisional data.
At the same time, oil prices have risen from $67 to over $110 per barrel within a month, increasing the government's subsidy burden.
The development comes as liquidity in the banking system remains high, supported by Bangladesh Bank's purchase of $5.49 billion from the interbank foreign exchange market in FY26 so far, injecting local currency into banks.
"Cash-surplus banks prefer to invest their excess funds in risk-free government securities, given weaker private-sector credit demand," said Mr Alam.
According to an official of BRAC Bank, who spoke on condition of anonymity, the bank is offering up to 8.2 per cent returns on fixed deposits. Most strong banks are offering around 7.5 per cent, while weaker banks offer higher rates to attract funds.
However, trading in Treasury bonds on the prime bourse dropped 63 per cent year-on-year to Tk 248 million in the January-March quarter amid rising yields on debt securities.
Bond prices are inversely related to interest rates, so bondholders are now less willing to sell T-bonds.
Treasury bonds are coupon-bearing, long-term investment instruments with maturities ranging from 2 to 20 years. At present, there are 226 Treasury bonds listed on the prime bourse, half of which are trading above the face value of Tk 100 each.
The rise and fall of yields depend on the government's funding requirements to meet budgetary shortfalls and the liquidity situation in banks. The policy rate set by Bangladesh Bank also influences T-bond interest rates, as banks borrow
from the central bank at the repo rate-currently 10 per cent, the same as the policy rate.
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