Yields on Bangladeshi treasury bills have experienced a sharp contraction, dropping by 21 to 25 basis points over the space of a single week. The downward pressure comes as commercial banks find themselves awash with surplus liquidity amidst persistent sluggishness in private-sector credit demand.
According to the latest figures released by Bangladesh Bank on 16 August, the yield on 91-day treasury bills slipped below the 9% threshold to stand at 8.93%, down from 9.19% recorded the previous week. Similarly, the 182-day treasury bill yield fell from 9.32% to 9.07%, whilst the rate for 364-day instruments declined from 9.33% to 9.13%.
Senior bankers have attributed this marked decrease primarily to the swelling reserves of surplus money within the banking sector, coupled with reluctant borrowing from private enterprises. Central bank data underscores a dramatic accumulation of unutilised capital: surplus funds held by commercial banks rose by Tk80,123 crore in June alone to reach Tk4,08,000 crore, up from Tk3,27,877 crore in May. This expansion follows earlier balances of Tk3,77,235 crore in April and Tk3,78,134 crore in March.
The accumulation of liquidity stems largely from robust deposit growth across the sector. In a bid to secure reliable funding, banks previously offered attractive return rates, driving deposit growth up by approximately 11.5% year-on-year by May. Faced with burgeoning deposits and limited opportunities to disburse lucrative private loans safely, financial institutions have pivoted towards sovereign debt to deploy their excess capital safely. Treasury bills have thus emerged as a preferred short-term, low-risk refuge.
This shift in capital allocation reflects a broader, multi-year trend in public debt investment. Total holdings in government treasury bills and bonds surged to Tk7,95,359 crore in FY26, rising substantially from Tk6,93,725 crore recorded in FY25. Commercial banks, insurance companies, and non-bank financial institutions remain the primary institutional buyers.
The current landscape marks a notable shift from recent historical volatility. Following Bangladesh Bank’s removal of the long-standing 9% lending rate cap on 1 July 2023, the central bank introduced a market-driven interest rate framework benchmarked against the SMART system. The move triggered a sharp rise in sovereign yields, which breached 12% at various points during FY25. During that phase, deposit rates hovered between 9% and 11%, prompting unprecedented retail participation from individual investors seeking higher, government-backed returns. However, with system-wide liquidity now overflowing and several prominent institutions cutting deposit interest rates by 50 to 100 basis points since August, sovereign yields appear to be stabilising at lower levels.
