Interest rates on government treasury bills have dropped sharply by 2.5 percentage points over the past three months as the government reduced its borrowing from commercial banks and easing liquidity pressure on the money market.
According to Bangladesh Bank data, yields on 91-day, 182-day and 364-day treasury bills fell to 9.5 per cent, 9.71 per cent and 9.6 per cent respectively on Sunday 鈥� down from about 10 per cent in September and nearly 12 per cent in June 2025.
Similarly, yields on longer-term instruments have also fallen. In September 24 auction, 20-year treasury bond yield declined to 9.63 per cent and 15-year bond to 9.66 per cent, while 5-year bond yield fell to 10 per cent on September 10.
Just three months earlier, these rates ranged between 12.28 and 12.44 per cent.
The surge in rates drew individual investment in government treasury bills and bonds, which increased more than sevenfold over the two years ending in June 2025.
According to Bangladesh Bank data, individual holdings rose to Tk 7,941 crore in June 2025 from that of Tk 3,850 crore in June 2024 and Tk 1,102 crore in June 2023.
It was the first time since September 2023 that T-bill and bond yields had dropped below 10 per cent.
At that time, yields ranged between 7.24 per cent and 7.97 per cent for short-term bills and 8.99 to 9.76 per cent for bonds, before surging above 12 per cent in early 2025 as the government relied heavily on banks to finance its deficit.
The sharp decline in yields signals a major turnaround in fiscal and monetary policy.
In July-August 2025, the government refrained from fresh borrowing and instead repaid Tk 3,105 crore to the Bangladesh Bank while keeping borrowing from commercial banks to just Tk 588 crore.
As a result, its net borrowing from the banking system turned negative by Tk 2,516 crore during the period.
Experts said that this repayment had reduced demand for liquidity, directly pushing yields down.
Earlier, when the government borrowed aggressively through high-yield T-bills and bonds, banks found it more profitable to invest in government securities than to lend to the private sector, crowding out credit and raising debt servicing costs for the government.
With inflation still elevated and fiscal pressures mounting, the government has shifted toward a more cautious borrowing stance, supported by an increase in external financing and remittance inflows.
In the 2024-25 financial year, net borrowing from the banking system fell to Tk 72,372 crore 鈥� the lowest in four years 鈥� against a Tk 99,000 crore target.
Lower yields have reduced the cost of public borrowing, freeing fiscal space for social spending and infrastructure.
However, the downside is that banks 鈥� which hold a large volume of government securities 鈥� now earn lower returns, affecting profitability amid weak private credit demand.
To maintain liquidity balance, the Bangladesh Bank has encouraged banks to invest in short-term interbank instruments such as call money and repo markets.
For FY26, the government has set a net borrowing target of Tk 1.04 lakh crore from the banking system.