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The yield on Bangladesh Government Treasury Bonds (BGTBs) dropped significantly on Tuesday, as the commercial banks preferred to invest their excess funds in the securities due to the ongoing lockdown, bankers said.
The cut-off yield, generally known as interest rate, on the 15-year BGTBs came down to 5.87 per cent on the day from 6.66 per cent earlier. The yield on 20-year BGTBs fell to 6.64 per cent from 6.95 per cent, according to the auction results.
The government borrowed Tk 10 billion through issuing two types of BGTBs on the day to meet its budget deficit partly.
On Sunday, the yield on treasury bills (T-bills) fell further on the same ground, according to the bankers.
Except a few, most of the banks would further cut their interest rate on deposits to minimize cost of funds, they hinted.
They also said the banks had already slashed their interest rates on all types of deposits because of a high inflow of liquidity in the market.
Lower import payment obligations as well as higher inflow of remittance pushed up inflow of liquidity in the market recently.
Besides, the ongoing expansionary monetary policy of the Bangladesh Bank (BB) coupled with implementation of the government's stimulus packages have driven up liquidity in the banking system, they added.
The weighted average interest rate on deposits fell to 4.46 per cent in February from 4.53 per cent in the previous month, the BB latest data showed.
"Actually, most of the banks are now collecting FDR (fixed deposit receipt) by offering interest rates between 3.0 per cent and 4.0 per cent to the depositors," a treasury head of a leading private commercial bank (PCB) told the FE while replying to a query.
He also said the banks have rushed to offer bids in the auctions mainly due to lower demand for credit from both public and private sectors amid the pandemic second wave.
Actually, the cut-off as well as the weighted average yield on both T-bills and BGTBs started falling since May 2020 after the coronavirus outbreak in Bangladesh in March. Such a falling trend was continuing until February 2021, the data showed.
Talking to the FE, a BB senior official said the yields on the government-approved securities will increase in the near future, if the economic activities revamp by overcoming the pandemic.
Currently, three T-bills are being transacted through auctions to adjust the government's borrowings from the banking system. The T-bills have 91-day, 182-day and 364-day maturity periods.
Furthermore, five government bonds with tenures of 02, 05, 10, 15 and 20 years are traded in the money market.