The Rising Popularity of Treasury Bills and Treasury Bonds

As Bangladesh transitions from a least developed country to a developing country, we are witnessing a rapidly growing middle and low-income demographic willing to save and invest money beyond their daily expenses, despite the long-standing high inflation rate. However, investment opportunities are not widely known in Bangladesh. The most commonly practiced ways of investment include the stock exchange, national savings certificates (NSCs), land, gold and various deposit schemes. Recently, however, T-bills and T-bonds have been gaining popularity due to rising interest rates. Their yields have increased to 12%.

 "Besides banks, individuals have options to invest with the government by purchasing savings certificates, treasury bills, and treasury bonds, depending on their risk-return appetite. Currently, various tenors of treasury bonds (2, 5, 10, 15, and 20 years) are providing competitive returns, which may attract individuals to prefer treasury bonds," says MD Qamrul Islam Chowdhury, Managing Director of Mercantile Bank.

Chowdhury further explains, "As it is a new investment option, it is taking time for common people to become habituated. Another reason may be the complex calculation procedure compared to other schemes, especially in the case of reissue bonds, secondary buy/sell, and the 5% AIT."

Md. Nehal Ahmed, Director of Dhaka School of Bank Management (DSBM), observes, "Trust is the main reason why bonds are not widely popular among the masses."

Syed Mahbubur Rahman, Managing Director and CEO of Mutual Trust Bank, adds, "Although major investors in government securities are institutions, individual investors are increasingly showing interest in government securities compared to other investment schemes. However, an active secondary market is required to popularize government securities."

 "Through LankaBangla Treasury, clients can invest in government securities. The growing enthusiasm of potential clients is evident from the approximately 40% increase in BP ID openings compared to last year," shares Khurshed Alam, Head of Retail Financial Services, LankaBangla Finance PLC.

Al-Mamun Ansar, Head of Liability Business, Liability and Wealth Management at Dhaka Bank, echoes the sentiments of LankaBangla Finance. He notes that the popularity of BP ID has doubled compared to last year. People are becoming more aware of treasury bonds and bills through print and electronic media, as well as services provided by scheduled banks and financial institutions. While a large number of people, including small shop owners, previously leaned towards National Saving Certificates, treasury bills and bonds are now gaining currency.

T-bills & T-bonds

The main distinction between T-bills and T-bonds lies in their terms. T-bills are short-term investments ranging from 3 months to 1 year, whereas T-bonds are coupon-bearing long-term investments ranging from 2 to 20 years. The government typically issues treasury bills and bonds to borrow money from the market.

Clients can enjoy numerous benefits by investing in T-bills and T-bonds. These are considered almost risk-free since Bangladesh Bank is the custodian. Clients can enjoy lucrative interest rates since the price is determined in the market. One can derive the best service from Bangladesh Bank as it operates a fully automated scripless depository system named Market Infrastructure (MI) Module.

Besides banks, individuals have options to invest with the government by purchasing savings certificates, treasury bills, and treasury bonds, depending on their risk-return appetite. Currently, various tenors of treasury bonds (2, 5, 10, 15, and 20 years) are providing competitive returns, which may attract individuals to prefer treasury bonds.

Individuals can easily buy government securities in several ways. Banks and financial institutions assigned by Bangladesh Bank generally take the initiative to open BP IDs on behalf of individual and institutional clients in the MI Module of Bangladesh Bank to participate actively in the auctions. Individuals may also conduct transactions in government securities in the secondary market over the counter (OTC) or through the Trade Work Station (TWS) of the MI module.

Any individual client can buy instruments through primary dealers or scheduled banks. Primary dealers are financial institutions that act as guarantors of government securities in primary auctions.

The salient features of T-bills and T-bonds are as follows:

•  Tradable instruments in the secondary market.

•  Customers can enjoy tax rebate facilities on income returns.

•  Scripless instruments.

•  Minimum bid amount is Taka 1 lakh & its multiples, with no upper ceiling.

•  Low risk as the government is the custodian.

•  Investors receive discount income at the maturity of the bill in the case of Treasury Bills.

•  Investors receive fixed semi-annual coupon amounts in the case of Treasury Bonds for the remaining term of the bond.

How T-Bills and T-Bonds are issued:

•  Treasury bill auctions are usually held weekly on Sundays following a pre-announced auction calendar. Bidders quote their prices, and the auction committee sets the cut-off price from the offered prices.

•  Treasury bond auctions are usually held weekly on Tuesdays following a preset auction calendar. In the case of new issues, bidders quote their expected yields, and for re-issues, they quote prices.

Who Can Invest:

•  Residents and non-residents.

•  Institutional investors.

•  Insurance companies.

•  Corporates.

•  Provident funds.

•  Pension funds.

•  Mutual funds.

How Banks Serve:

•  Inform potential clients about investment in T-Bills and T-Bonds, including Yield/Coupon information.

•  Provide all necessary facilities for opening Business Participant IDs for T-Bills and T-Bonds.

•  Facilitate the opening of bank accounts for settlement of securities buy-sell transactions, coupon payments, and maturity values.

•  Execute Securities Buy/Sell transactions promptly on the client's request.

•  Ensure timely processing of coupon payments, maturity amount payments, and all transactions related to the Buy/Sell of Client Bank Accounts.

•  Settle reconciliation of securities for all existing clients promptly.

•  Properly conduct all trading securities with other platforms in conjunction with Bangladesh Bank.

•  Maintain investor portfolios digitally.

•  Proceed with transactions after getting a signal from the client's Treasury Investment desk.