Investing in the government-issued bills is now more profitable than keeping money in a bank or purchasing savings certificates
Published : 31 Oct 2024, 11:29 AM
The interest rate on treasury bills has climbed further, surpassing both commercial bank deposit rates and savings certificate returns.
On Oct 21, the rate for the 91-day treasury bill reached 11.75 percent, a 0.16 percent increase from September, according to a Bangladesh Bank report.
The rate for the 182-day bill rose to 11.90 percent, up from 11.80 percent in the previous month.
On the same day, the 364-day treasury bill rate stood at 11.99 percent, which is 0.04 percent higher than in September.
At the same time last year, treasury bill rates were between 9.25 percent and 9.75 percent, indicating a marked rise of 2.25 to 2.50 percentage points over the past year.
Currently, leading banks are offering deposit interest rates ranging from 8 percent to 11 percent.
While savings certificates offer a rate of 11.52 percent, the government has recently imposed various restrictions on their purchase.
To cover budget deficits, the government usually borrows from the banking sector through 91-day, 182-day, and 364-day treasury bills, as well as bonds with maturities of 2 to 20 years.
According to Bangladesh Bank data, Tk 55 billion was raised through treasury bills on Oct 21. However, nearly Tk 90 billion was offered by banks in the auction. Due to high-interest demands, Bangladesh Bank could not sell all the bills that day.
WHAT IS A TREASURY BILL?
A treasury bill is a short-term financial instrument issued by the government, typically maturing within a year or less.
Known for being a safe and low-risk investment, treasury bills are backed by government assurance of interest returns.
Both individuals and institutions can invest in treasury bills and bonds, although commercial banks have increasingly been channeling their excess funds into these investments in recent years.
For example, in 2023, MetLife Bangladesh invested Tk 150 billion of its Tk 187 billion portfolio in government treasury bills and bonds, marking a Tk 10 billion increase from the previous year.
This trend has also contributed to significant profit growths, with Standard Chartered Bangladesh reporting a 41 percent profit increase in 2023 due to these investments.
There is no upper limit on investments in treasury bills and bonds, allowing for flexible and unlimited investment options.
WHERE TO BUY TREASURY AND BONDS
Treasury bills and bonds are available through banks, the stock market, brokerage houses, and investment banks.
However, only dealer banks designated by Bangladesh Bank offer this service. Some associated banks of these dealer banks also provide purchase options.
On the stock market, treasury bills and bonds are available for those with a Beneficiary Owners (BO) account. Treasury bills require a Business Partner (BP) account, which can be opened through banks.
Bonds can be purchased directly from the stock market, starting from as low as Tk 100, while bank purchases require a minimum investment of Tk 100,000.
WHY INTEREST RATES ON TREASURY BILLS AND BONDS ARE RISING
Economists and bankers attribute the rising interest rates on treasury bills and bonds to two primary factors. First, expectations of an increase in the policy rate, or repo rate, prompted the government to raise treasury bill rates when borrowing from commercial banks on Oct 21.
The policy rate was officially raised by 50 basis points to 10 percent on Oct 22.
Second, with attractive interest rates on treasury bills and bonds, commercial banks are investing heavily in this sector.
A RELIABLE INVESTMENT
Banks are buying bills and bonds as a secure investment, according to Syed Mahbubur Rahman, managing director of Mutual Trust Bank (MTB). "With government borrowing, repayment is guaranteed, and the interest rate is favourable.”
Zahid Hussain, a former lead economist at the World Bank's Dhaka office, noted that many influential businesses have borrowed from banks and failed to repay.
Consequently, over the last year and a half, banks have increasingly viewed treasury bills and bonds as a more reliable investment than the private sector.
A deputy managing director of a private bank, who asked to remain anonymous, explained that as the central bank has raised the policy rate several times over the past two months to tame inflation, banks anticipated another hike in October.
"When the repo rate rises, so does the cost of borrowing from the central bank, which affects our approach to purchasing treasury bills. Generally, any increase in the policy rate or the likelihood of it drives up all interest rates.”