The interest rate on Bangladesh Government Treasury Bonds (BGTBs) dropped on Tuesday as the commercial banks preferred investing their surplus liquidity created due to the coronavirus outbreak in the country.

The yield, generally known as coupon interest rate, of the two-year BGTBs fell to 7.68 per cent on the day from 7.88 per cent of the previous auction, according to officials.

The government borrowed Tk 4.50 billion from the scheduled banks through issuing treasury bond on the day to partly finance the budget deficit.

“The banks are now interested to invest their excess liquidity in the risk-free government securities for getting benefit from the central bank’s policy support,” a senior official of Bangladesh Bank (BB) told the FE.

The banks are now free to use more than Tk 190 billion as loanable funds after the central bank slashed the cash reserve requirement (CRR) by 150 basis points to 4.0 per cent from 5.50 per cent earlier.

Besides, the banks are getting fund from the central bank with lower cost because the repo rate has already been cut by 75 basis points to 5.25 per cent from previous 6.00 per cent, the central banker explained.

“We’re now holding excess liquidity mainly due to lower demand for credits in the recent days due to the spread of deadly coronavirus in Bangladesh,” a treasury head of a leading private commercial bank said.

The central bank policy support also helped the banks manage their liquidity efficiently, he added.

The senior banker predicted that the yield on the government securities might increase during the post-Covid-19 period.

Currently, three treasury bills (T-bills) are being transacted through auctions to adjust the government borrowings from the banking system. The T-bills have 91-day, 182-day and 364-day maturity periods.

Furthermore, five government bonds with tenures of 02, 05, 10, 15 and 20 years respectively are traded on the money market.

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