Interest rates on treasury bills and bonds have climbed sharply after the Bangladesh Bank discontinued its 28-day repo facility, tightening liquidity in the banking system and making banks more hesitant to invest in government securities.
According to Bangladesh Bank data, yields on treasury bills rose to between 11.45 per cent and 11.86 per cent in the April 13 auction, up from 10.90 per cent to 11.30 per cent in the March 24 auction.
The yield on the 5-year treasury bond also jumped to 12.39 per cent in the April 8 auction, compared to 11.50 per cent on March 12.
Banks have become cautious about investing in government securities after the central bank phased out the 28-day repo facility鈥攖hrough which banks borrowed short-term funds from BB鈥攅ffective from April 10. As a result, banks could no longer borrow short-term funds from the central bank for 28 days.
This facility had been a key liquidity source for banks, and its withdrawal sharply reduced their available funds.
The central bank is also considering discontinuing the 14-day repo, which could create even more pressure on bank liquidity.
The sudden liquidity squeeze limited banks鈥� ability to invest in treasury bills and bonds.
At the same time, the government鈥檚 borrowing needs have increased ahead of the fiscal year-end, leading to a surge in yields to attract buyers.
On April 13, the government borrowed Tk 8,517.6 crore through 91-day, 182-day, and 364-day T-bills at interest rates of 11.45 per cent, 11.75 per cent, and 11.86 per cent, respectively.
In comparison, on March 24, the government raised Tk 6,652 crore through the same instruments at lower rates of 10.90 per cent, 11.25 per cent, and 11.30 per cent.
Government borrowing from the banking system has risen significantly in recent months.聽 Net bank borrowing reached Tk 51,982 crore by the end of March in FY25, up from Tk 26,225 crore in July鈥揊ebruary.
This includes Tk 93,371 crore borrowed from scheduled banks, while Tk 41,388 crore was repaid to the Bangladesh Bank鈥攄own from nearly Tk 60,000 crore in the first eight months of the fiscal year.
The government revised its bank borrowing target for FY25 to Tk 99,000 crore, down from the original target of Tk 1.37 lakh crore.
Treasury bills are used for short-term borrowing, while treasury bonds serve long-term financing needs.
Government borrowing from the financial sector, including the central bank, primarily occurs through treasury bills and bonds.
The weighted average yields on 2-year, 10-year, 15-year and 20-year Bangladesh Government Treasury Bonds or BGTBs increased to 12.18 per cent, 12.05 per cent, 12.28 per cent, 12.54 per cent respectively in the last auction in March-April.