Dhaka, Bangladesh (BBN) - The yield on two-year treasury bonds fell further on Tuesday as the central bank purchased US$171 million from 16 banks in a bid to stabilise the exchange rate of the US dollar against the local currency.
The cut-off yield, generally regarded as the interest rate, on the Bangladesh Government Treasury Bonds (BGTBs) declined to 10.46 per cent on the day from 10.51 per cent earlier, according to auction results.
Earlier, on January 6, the cut-off yield on the BGTBs had fallen to 10.51 per cent from 10.72 per cent on the same ground.
“Most of banks are now parking excess liquidity in government-approved securities as private sector credit demand remains weak ahead of the upcoming national election,” a senior Bangladesh Bank (BB) official said, explaining the latest market situation.
He also said higher remittance inflows, coupled with the central bank’s purchases of US dollars, have improved market liquidity, helping ease yields on government securities. The central banker further predicted that the existing downward trend in government securities’ yields may continue in the coming weeks.
On the day, the government raised BDT 25 billion through the issuance of BGTBs to partially finance its budget deficit. Besides, it borrowed another BDT 5.0 billion through issuing three-year Floating Rate Treasury Bonds (FRTBs).
The cut-off yield on the FRTBs also declined to 10.58 per cent from 10.67 per cent earlier.
The FRTB is a bond whose coupon rate is determined by adding a spread to the benchmark 91-day Bangladesh Compounded Rate (BCR). The BCR is a daily reference rate based on the cut-off yield of 91-day Treasury Bills (T-bills) and is primarily used to set the rates of floating-rate government instruments.
Currently, five government bonds with tenures of two, five, 10, 15 and 20 years are traded in the market.
Besides, four treasury bills with maturities of 14 days, 91 days, 182 days and 364 days are auctioned regularly to manage government borrowings from the banking system.
Market operators, however, said the central bank’s US dollar purchases injected liquidity into the market in the form of Bangladesh Taka (BDT), pushing bond yields lower.
As part of its ongoing open market operations, the central bank on Tuesday purchased an additional US$171 million from 16 banks through an interbank spot market auction.
The amount was bought under the Multiple Price Auction method, with a cut-off rate of BDT 122.30 per dollar, according to central bank officials.
The Bangladesh Bank has so far purchased $4.32 billion from scheduled banks directly since July 13 last under the prevailing free-floating exchange rate regime, BB data showed.
Central bankers said the interventions aim to maintain exchange rate stability, preserve export competitiveness and support steady remittance inflows. They also noted that the purchases are helping gradually rebuild the country’s foreign exchange reserves.
Meanwhile, Bangladesh’s gross foreign exchange reserves rose to $33.24 billion on February 2 this year from $33.18 billion on January 29, 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 $28.75 billion, up from $28.68 billion during the same period.
BBN/SSR/AD