Treasury bonds, bearing half-yearly interest coupons with tenors of 2 years, 5 years, 10 years, 15 years, and 20 years, are auctioned every month following a pre-announced auction calendar prepared by Bangladesh Bank (BB) and the Ministry of Finance. This calendar is designed considering liquidity conditions and macroeconomic indicators. In Bangladesh, treasury bonds are issued using the Multiple Price-based Dutch Auction Method, where bidders receive securities at the yield or price they bid. In these auctions, only Primary Dealers (PDs) are allowed to participate directly. Primary Dealers are financial institutions, including commercial banks, that act as underwriters for government securities in the primary auctions.
Currently, there are 24 Primary Dealers in Bangladesh. Other commercial banks, Non-Bank Financial Institutions (NBFIs), insurance companies, corporations, provident funds, and individuals can participate in these auctions only through Primary Dealers.
The lowest accepted bid price or the highest accepted yield in an auction is referred to as the cut-off rate. This cut-off rate is intended to act as the market-clearing rate, which aligns with the fiscal deficit financing requirements. However, in Bangladesh, this rate often does not fully clear the market to meet the desired fiscal deficit. The remaining deficit is termed development liability, which is passed on to the Primary Dealers (PDs).
For example, if Bangladesh Bank (BB) aims to raise 100 Cr. through an auction but receives acceptable bids for only 60 Cr., the remaining 40 Cr. is allocated to the PDs at the cut-off rate. This ensures that the auction is successful and the required funds are raised, even if the market does not fully subscribe to the intended amount.
How can you buy Treasury Bonds in Bangladesh?
You can invest in Treasury Bonds in Bangladesh through two simple methods, depending on what works best for you.
The first option is through your Beneficiary Owners (BO) account. You can deposit money into your BO account and instruct your broker to buy bonds on your behalf. The purchase amount must be in multiples of 100,000 Taka. Brokers typically request you to deposit an additional 3-5% of the intended purchase amount. This extra ensures that if the bond price exceeds 100,000 Taka, they can complete the purchase without needing to ask for additional funds.
The second option is through a Business Partner Identification (BP ID). Scheduled banks and financial institutions with accounts at the Motijheel Office of Bangladesh Bank can assist their individual or institutional customers in opening a BP ID. This ID, created in the Market Infrastructure (MI) Module of Bangladesh Bank, enables participation in treasury bond auctions directly.