Interest rates on government treasury bills and bonds have dipped below 10 per cent for the first time in two years, driven by the government鈥檚 reduced borrowing from commercial banks, which has eased demand for funds in the money market and lowered the cost of borrowing for the state.
Bangladesh Bank data shows that on September 21, yields on 91-day, 182-day, and 364-day treasury bills fell to 9.94 per cent, 9.87 per cent, and 9.81 per cent respectively, compared with around 12 per cent in June this year.
Similarly, the yield on the 20-year treasury bond dropped to 9.63 per cent, while the 15-year bond stood at 9.66 per cent in the September 24 auction.
Even the five-year bond yield fell to 10 per cent on September 10. The yields on these bonds were ranged between 12.44 to 12.28 per cent at the end of June.
This marks the first time since September 2023 that T-bill and bond yields have stayed below the 10 per cent threshold.
In September 2023, rates were slightly lower in between 7.24 per cent to 7.97 per cent for short-term bills and 8.99 to 9.76 per cent for longer-term bonds 鈥� but they surged above 12 per cent earlier this year as the government leaned more heavily on banks to finance deficits.
The recent decline reflects a major shift in fiscal and monetary management.
In July and August, the government did not borrow any fresh funds from banks. Instead, it repaid Tk 3,105 crore to Bangladesh Bank and kept borrowing from commercial banks to just Tk 588 crore.
This left its net borrowing from the banking system negative by Tk 2,516 crore.
Such repayments reduced the pressure on banks to provide funds and directly pushed treasury yields downward.
Bankers explained that high yields earlier this year had sharply increased the government鈥檚 cost of debt servicing.
With inflation still high and fiscal stress mounting, the government has opted to borrow cautiously from banks, relying more on foreign loans and repayments.
In FY25, net borrowing from banks dropped to Tk聽72,372 crore 鈥� the lowest in four years 鈥� against a Tk 99,000 crore target, thanks largely to inflows of external financing.
Treasury bills and bonds are the government鈥檚 primary tools to raise funds, with short-term T-bills used to meet immediate cash needs and longer-term bonds for budgetary financing.
Lower yields mean the government pays less interest, which eases its fiscal burden. However, lower rates also reduce returns for banks holding large amounts of idle liquidity.
To keep the money market active, Bangladesh Bank has encouraged banks to channel excess funds into other instruments such as the call money market and interbank repo transactions.
This is part of its broader monetary policy aimed at stabilising liquidity, keeping lending rates affordable, and balancing inflation control with growth needs.
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.