Dhaka, Bangladesh (BBN) - The yield on 10-year treasury bonds fell on Tuesday as the central bank purchased an additional US$45 million from two banks in a bid to stabilise the exchange rate of the US dollar against the local currency.
The cut-off yield—generally known as the interest rate—on the Bangladesh Government Treasury Bonds (BGTBs) declined to 10.49 per cent on the day from 10.87 per cent earlier, according to auction results.
“A good number of banks are showing interest in investing their excess liquidity in government securities, as private sector credit demand remains weak ahead of the upcoming national polls,” a senior Bangladesh Bank (BB) official said, explaining the latest market situation.
He also said higher remittance inflows, along with the central bank’s purchases of US dollars, have helped improve market liquidity, thereby pushing bond yields down.
The central banker predicted that the existing downward trend in government securities yields may continue in the coming weeks.
On the day, the government raised BDT 30 billion through the issuance of BGTBs to partially finance its budget deficit.
Currently, five government bonds—with tenures of two, five, 10, 15 and 20 years—are traded in the market.
Besides, four treasury bills (T-bills) are transacted through auctions to manage government borrowing from the banking system. The T-bills have 14-day, 91-day, 182-day and 364-day maturity periods.
Market operators said the central bank’s purchases of US dollars injected local currency—Bangladesh taka (BDT)—into the market, putting downward pressure on bond yields.
As part of its ongoing open market operations, the central bank on Tuesday bought an additional $45 million from two banks through an interbank spot market auction to help stabilise the exchange rate of the US dollar against the BDT.
The amount was purchased under the Multiple Price Auction method and the cut-off rate was BDT 122.30 per dollar, according to BB officials.
The central bank has so far bought $3.88 billion from banks directly since July 13 last under the prevailing free-floating exchange rate arrangement, the BB’s latest data showed.
Another BB official said the central bank is buying US dollars from scheduled banks to stabilise the exchange rate, while supporting export competitiveness and remittance inflows.
“Such interventions are also helping gradually rebuild the country’s foreign exchange reserves,” he added.
Meanwhile, Bangladesh’s gross foreign exchange reserves rose to $32.62 billion on January 15 this year from $32.44 billion on January 08, according to the central bank’s traditional calculation.
Under the International Monetary Fund’s Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6), the reserves stood at $28.03 billion during the period, up from $27.84 billion a week earlier.
BBN/SSR/AD