Dhaka, Bangladesh (BBN)- The yield on five-year treasury bonds declined on Tuesday as commercial banks continued to park surplus liquidity in government securities amid persistently weak private-sector credit demand.
The cut-off yield—commonly known as the interest rate—on the five-year Bangladesh Government Treasury Bonds (BGTBs) fell to 10.22 per cent at the latest auction, down from 10.32 per cent previously, according to official results.
The government raised BDT 25 billion through the issuance of the bonds as part of its ongoing efforts to finance the budget deficit through domestic borrowing.
The latest fall in yields indicates growing liquidity in the banking system and cautious lending behaviour by banks, despite the central bank maintaining a relatively tight monetary stance.
The fact that yields on some government securities are moving close to—or even below—the policy rate reflects banks’ strong appetite for relatively risk-free instruments in an uncertain economic environment, analysts say.
Banks shifting strategy amid weak credit demand
Bankers say many lenders are increasingly allocating surplus funds to government securities as private investment remains sluggish.
“Most banks are parking their excess funds in risk-free government securities as private-sector credit demand remains subdued amid ongoing geopolitical tensions,” a senior official of Bangladesh Bank (BB) said while explaining the latest market situation.
The current trend indicates that banks are prioritising liquidity management and balance-sheet stability over aggressive lending, particularly as businesses remain cautious about expanding investment.
Credit slowdown reinforces trend
Latest BB data show that private-sector credit growth slowed to 6.03 per cent year-on-year in January 2026, down slightly from 6.10 per cent in December, highlighting the continuing weakness in investment activity.
The growth rate is significantly below the central bank’s monetary programme targets, suggesting that the transmission of higher interest rates into economic activity has remained uneven.
Economists say that when private credit demand remains weak, banks tend to redirect funds into government securities, which in turn puts downward pressure on yields.
Implications for interest-rate outlook
Market analysts say the recent decline in yields on treasury instruments could signal early signs of easing pressure in the domestic interest-rate environment, although the overall monetary policy stance remains tight.
If the trend of slow credit growth and strong liquidity inflows continues, yields on government securities—particularly shorter and medium-term instruments—may remain under downward pressure in the near term.
However, economists caution that external risks, including volatile energy prices and geopolitical tensions, could still influence liquidity conditions and borrowing costs.
Government securities market structure
Currently, five Bangladesh Government Treasury Bonds with maturities of two, five, 10, 15 and 20 years are traded in the market.
In addition, four treasury bills —with maturities of 14 days, 91 days, 182 days and 364 days —are issued through auctions to help the government manage short-term borrowing from the banking system and maintain liquidity balance in the financial market.
BBN/SSR/AD