Dhaka, Bangladesh (BBN)- The yield on two-year treasury bonds dropped below the central bank's policy rate on Tuesday, as banks continued shifting excess liquidity into government securities amid sluggish private credit demand before the national election.
The cut off yield, generally known as interest rate, on the Bangladesh Government Treasury Bonds (BGTBs) came down to 9.44 per cent on the day from 10.17 per cent earlier, according to auction results.
In contrast, the Bangladesh Bank's (BB policy rate, or repo rate, currently stands at 10 per cent.
A similar trend was seen earlier on September 2, when the yield slipped to 10.17 per cent from 10.24 per cent, as banks continued favouring risk-free government securities over private lending.
On Tuesday, the government raised BDT 35 billion through the issuance of BGTBs to help finance part of its budget deficit.
Most banks prefer to invest their excess funds in government-approved securities, mainly because of subdued private sector credit demand ahead of the national election, according to market operators.
Meanwhile, the growth in private sector credit stood at 6.52 per cent in July 2025 on a year-on-year basis, from 6.49 per cent a month ago, indicating weakening business confidence and tighter lending conditions.
On the other hand, market interventions by the central bank, through purchasing the US dollars from banks, have helped increase liquidity inflows into the market recently, they added.
The central bank purchased US$104 million more through auction from 8 banks in the interbank spot market on Monday aiming to keep the exchange rate of the US dollar against the local currency stable.
The amount was bought under the Multiple Price Auction method and the cutoff rate was BDT 121.80 per dollar.
The BB has so far bought $1.98 billion from banks directly since July 13 last under the prevailing free-floating exchange rate arrangement, according to official latest data
Besides, the government borrowed BDT 5.0 billion on the same day through issuing Three-Year Floating Rate Treasury Bonds (FRTBs).
The cut off yield on the FRTB also fell to 10.70 per cent on the day from 11.75 per cent earlier.
The FRTB is a bond whose coupon is determined by adding spread with benchmark 91 days Bangladesh Compounded Rate (BCR).
The BCR is a daily rate based on the cut-off yield of 91-Day Treasury Bills (T-bills) auction. This is a reference rate which is primarily used to set the rate of floating rate instruments of the government.
Currently, five government bonds, with tenures of two, five, 10, 15 and 20 years respectively, are traded on the market.
Besides, four treasury bills (T-bills) are transacted through auction to adjust government borrowings from the banking system.
The T-bills have 14-day, 91-day, 182-day and 364-day maturity periods.
BBN/SSR/AD