Interest rates on government treasury bills and bonds have fallen sharply in recent weeks as the government has scaled back its borrowing from commercial banks, easing demand for funds in the market.
Bangladesh Bank data showed that yields on treasury bills dropped to between 10.14 and 10.43 per cent on August 18, compared with 12 per cent to 12.03 per cent at the end of June.
Similarly, the yield on the five-year treasury bond fell to 10 per cent and on the 20-year bond to 10.38 per cent in the July auction, down from 12 per cent in June.
Officials at the central bank said that the declining yields reflected the government鈥檚 reduced borrowing requirement from commercial banks.
In July, the first month of the 2025鈥�26 fiscal year, the government borrowed Tk聽7,438 crore from the banking system to meet budget spending, while repaying Tk聽4,350 crore to commercial banks. As a result, net borrowing stood at just Tk 3,087 crore.
On August 17, the government collected Tk 5,500 crore through 91-day, 182-day and 364-day T-bills at interest rates of 10.14 per cent, 10.35 per cent and 10.43 per cent respectively.
By comparison, on June 29 it had borrowed Tk 8,000 crore through the same instruments at rates exceeding 12 per cent.
Government borrowing is mainly financed through treasury bills for short-term needs and treasury bonds for longer-term financing.
In July, the government issued Tk 12,640.5 crore worth of treasury bonds across various maturities, including Tk 4,140.5 crore in two-year bonds, Tk 500 crore in three-year bonds, Tk 3,000 crore each in five-year and 10-year bonds, and Tk 1,000 crore each in 15-year and 20-year bonds.
The weighted average yields in July鈥檚 auctions fell significantly across maturities as five-year bonds dropped to 10.27 per cent, 10-year bonds to 10.48 per cent, 15-year bonds to 10.47 per cent, and 20-year bonds to 10.54 per cent.
These were all more than two percentage points lower than yields in June, which had ranged from 12.35 to 12.59 per cent.
Bankers said that the government has been cautious about borrowing heavily from commercial banks, as higher interest rates on treasury instruments would raise its financing costs.
Instead, it has relied more on borrowing from Bangladesh Bank, which is available at the policy rate of 10 per cent. This strategy reduces the cost of debt servicing at a time of fiscal pressure.
Moreover, BB also wanted banks to invest their massive idle funds in other money market instruments including call money market and interbank repo to make the money market more vibrant.
In FY26, the government has set a net borrowing target of Tk 1,04,000 crore from the banking system to cover the budget deficit.
聽In the fiscal year FY25, the net borrowing stood at Tk 72,372 crore鈥攊ts lowest in four years and well below the Tk 99,000 crore target鈥攍argely due to an influx of foreign loans that reduced reliance on domestic banks.
