– Data from the central bank also indicate an influx of funds into treasury bonds and bills
Mahfuz Ullah Babu: Prioritising capital preservation with higher returns, smart investors are playing it safe by stashing their cash in treasury bonds and bills amid economic uncertainties and tightening monetary policies, say industry insiders.
The yield on three-month treasury bills has surged to 11.35%, marking a threefold increase over the past three years, while the yield on 10-year bonds reached a decade-high of over 12%, Bangladesh Bank data shows.
Treasury bonds and bills are debt securities issued by governments to raise funds. Bonds typically represent long-term debt instruments, while bills are short-term equivalents.
For individuals seeking to park a sizable amount, treasuries are currently offering the highest return among all the fixed-income opportunities. This is because reputable banks typically offer no more than 10% returns on term deposits.
Meanwhile, the previously popular National Savings Certificates (NSC) have become less lucrative due to rate cuts down to 9%, and stricter due diligence requirements, as well as limits on investment amounts.
Smart investors did not overlook the opportunity in treasuries, allocating as much capital as possible to these securities. Treasury securities are regarded as zero default risk instruments as the financial market operates under the assumption that governments are the least likely entities to default on repayments.
For instance, Brac Bank has already invested twice the required amounts in treasury securities. “Appetite for treasuries depends on interest rate cycle,” said Md Shaheen Iqbal, deputy managing director of the bank heading its Treasury and Financial Institutions division.
Tightening money market prompted migration to bills and bonds
He said the current trend of allocating a larger portion of available cash into secured government instruments started around two years ago when the money market began to tighten and over time, this trend has continued as yields have increased, resulting in an accumulation of funds.
Data from the central bank also indicate an influx of funds into treasury bonds and bills. The government’s outstanding treasury bonds, with tenures ranging from 2 to 20 years, reached a record high of Tk3.79 lakh crore in January this year, up from Tk1.55 lakh crore in 2019. Additionally, outstanding treasury bills, with maturities of 365 days or less, increased to Tk1.23 lakh crore from Tk45,000 crore in 2019.
