B Mirror Report:  Yields on all tenors of Bangladesh government treasury bills have fallen below 8% for the first time in three years, as weak private-sector credit demand leaves banks with excess liquidity and boosts investment in government securities.

At Sunday’s auction, yields on 91-day, 182-day and 364-day treasury bills declined to 7.65%, 7.75% and around 7.89%, respectively.

The cutoff yield on 91-day bills fell by 48 basis points to 7.65%, while the yield on 182-day bills dropped 62 basis points to 7.75%. The yield on 364-day bills declined by 71 basis points to 7.8870%.

Bankers and analysts said financially strong banks were investing surplus funds in government securities because lending demand from the private sector remained subdued and alternative investment opportunities were limited. The increased demand for treasury bills has helped reduce the government’s borrowing costs.

Kazi Ahsan Maruf, a chartered financial analyst and managing director of Ekush Wealth Management, said weak private-sector credit growth had encouraged banks to channel excess funds into government securities. Five to six financially strong banks were investing substantial amounts in these instruments, further supporting demand and pushing yields lower, he added.

Maruf said expectations of a further policy rate cut and the potential injection of Tk 20,000 crore through refinancing for incentive loans could increase liquidity in the banking sector. As a result, treasury bill yields could remain around 7.5%, he said.

However, declining yields on government securities, alongside lower bank deposit rates, are reducing returns for savers. When deposit rates remain below inflation, the purchasing power of deposited money erodes.

During the Covid-19 pandemic, yields on short-term government securities fell below 1%. They subsequently climbed above 9% in October 2023 and reached between 11.75% and 12% in October 2024, depending on maturity. Yields have since declined, with the pace of the fall accelerating from June this year.

Yields on longer-term government bonds have also eased. At an auction on September 22, the yield on 20-year government bonds fell to 9.35%, down from a peak of 12.75% two years earlier. The yield on 10-year bonds declined to 8.54% last month.

SM Rashedul Hasan, managing director of UCB Asset Management, said easing liquidity conditions in the money market had driven down yields across government securities of different maturities, narrowing the gap between short- and long-term yields.

He expects investors to show greater interest in fundamentally strong companies whose shares are trading at relatively low prices as returns from fixed-income investments decline in the coming months.

Analysts, however, remain cautious because of uncertainty over Bangladesh’s relations with the International Monetary Fund (IMF), high inflation, sluggish economic growth and pressure on corporate earnings.