Dhaka, Bangladesh (BBN)- The interest rate on Bangladesh Government Treasury Bond (BGTB) dropped on Tuesday, as commercial banks rushed to offer bids in the auction, treasury officials said.

The yield, generally known as coupon interest rate, on a 20-year BGTB fell to 8.9700 percent on the day from the 10.0700 percent of the previous auction.

“Auction of 20-year BGTB was held on Tuesday of which 13 bids amounting to total of US$166.48 million (BDT 8.037 billion) were offered. Of those, two bids amounting to total of $18.11 million (BDT 1.25 billion) were accepted,” the Bangladesh Bank (BB), the country’s central bank, said in a press statement.

“Some commercial banks have quoted lower interest rates to invest their excess liquidity in the risk-free government-approved securities to minimize cost of funds,” a senior treasury official of a private commercial bank said.

The overall excess liquidity with the commercial banks stood at $3.93 billion (BDT 270 billion) in April this year, representing a 25 percent growth over that in February last, according to the central bank of Bangladesh.

The amount of excess liquidity was $3.11 billion (BDT 215 billion) and $ 3.43 billion (BDT 237 billion) in February and March 2009 respectively, the BB data showed.

The treasury official also said the demand for such government securities has sharply risen mainly due to lower interest rates on call money in the inter-bank market.

The call rate ranged between 0.10 per cent and 10.00 per cent on the day unchanged from the previous level. But most of the deals were made at rates between 0.10 percent and 0.15 percent on the day, market operators said.

Currently, four government bonds – 5-year, 10-year, 15-year and 20-year -are being traded in the markets.

BBN/SS/SI/AD-29July09-2:13 am (BST)