Bangladesh yields compress as liquidity rebuilds

Bangladesh’s government securities market entered Q4 2025 in a phase of accelerated short-end compression, as Treasury-bill yields fell to their lowest levels in more than a year. According to the Government Securities Order Matching dashboard dated 23 October 2025, 91-day bills closed at a weighted-average yield of 9.27%, the 182-day at 9.31%, and the 364-day at 9.35%, all quoted on a yield-to-maturity basis. This marks a sustained drop of more than 250 basis points from the auction peaks above 11.8% registered in June 2025, and confirms that Bangladesh Bank’s monetary tightening cycle has delivered a structural improvement in liquidity conditions.

The re-pricing of T-bills is anchored in a recalibrated policy stance by Bangladesh Bank. Since the rollout of its SMART framework in mid-2023, the policy (repo) rate has operated as the upper bound for sovereign yields and currently stands at 10.0%, unchanged since August 2024. Through October, the average call money rate was 8.9%, situating market bill yields just under the policy ceiling and providing modest positive carry for banks that rotate surplus liquidity into sovereign paper.

Lower government net borrowing requirements since mid-2025, alongside a cautious issuance calendar, have tightened front-end supply and contributed to compressed stop rates across all major tenors. The near-flat spread—just 8 basis points between the 91- and 364-day bills—reflects both abundant system liquidity and subdued market expectations for imminent policy shifts.

Macroeconomic implications are immediate and measurable. Lower T-bill yields ease the sovereign’s interest expense profile, with the Ministry of Finance projecting interest payments at approximately 28% of total revenue for fiscal year 2024/25. A 200-basis-point reduction in average issuance yields since mid-year results in a savings of over BDT 120 billion (USD 1.0 billion) on new and rolled maturities.

These gains also enhance banks’ capital ratios through mark-to-market improvements on sovereign holdings, though margin compression will intensify competition for retail deposits. Private sector credit growth, which stood at 9.2% year-on-year in August 2025, is expected to accelerate as reduced sovereign crowding-out allows for a more efficient allocation of banking sector liquidity.

From a market perspective, the T-bill rally and curve flattening have reinforced the defensive positioning of local investors amid external pressures. Foreign exchange reserves stabilized near USD 25 billion—covering roughly 4.5 months of imports—supported by resilient remittance inflows and a retreat in global oil prices (CL=F at USD 74/barrel).

However, the Bangladesh taka (BDT=X) depreciated about 3% year-to-date, maintaining a pass-through effect on imported inflation and circumscribing the space for additional monetary easing. The yield curve’s configuration signals that excess liquidity, rather than a marked shift in policy direction, is driving the compression.

In the regional context, Bangladesh occupies a mid-yield position. One-year Indian government securities yielded about 7.0% in October 2025, while comparable Pakistani bills traded above 20%. Bangladesh’s local currency debt thus offers higher nominal returns than its Indian peer, but with greater currency and liquidity risk.

For international fixed-income investors, the yield differential may encourage selective positioning if FX stability is preserved and the policy anchor remains credible. Cross-asset allocators are monitoring the interplay of global commodity cycles, local inflation dynamics, and the government’s fiscal trajectory, all of which will determine whether this rally in sovereign bills proves durable.

Forward indicators are defined and actionable. Over the next two quarters, confirmation of 91-day bill yields holding below 9.5%, call money rates within 100 basis points of the policy rate, and inflation trending toward 7.5% would indicate a structurally improved liquidity environment. By late 2026, a 364-day bill yield remaining within ±50 basis points of the policy rate and private sector credit growth exceeding 10% year-on-year would demonstrate effective monetary transmission.

Upside risk to yields stems from renewed fiscal borrowing or currency depreciation beyond BDT 125 per USD, which could reverse gains and force the policy rate higher. The current environment, with anchored inflation and bill yields below 10%, positions Bangladesh’s sovereign curve for further stabilization if fiscal and currency discipline are maintained.