Govt treasury bills-bonds can be alternatives to savings certificates, fixed deposits

If you have idle funds and are unable to find a suitable investment avenue, government securities—namely treasury bills and treasury bonds—may offer a viable option.

These instruments can serve as effective alternatives to savings certificates and fixed deposit receipts (FDRs). Public interest in bonds has also been gradually increasing.

Treasury bills and bonds provide returns comparable to those of savings certificates and FDRs.

While savings certificates typically offer returns of around 10–11 per cent upon maturity, Treasury bills and bonds deliver similar rates of return. Interest rates on FDRs are also broadly comparable.

Treasury bills and treasury bonds are government securities. Treasury Bills, commonly referred to as T-bills, are short-term debt instruments. They are usually issued for tenures of 91 days, 182 days, and 364 days.

These instruments are sold at a discount and redeemed at face value upon maturity. As a result, investors earn profit from the difference between the purchase price and the redemption value.

In contrast, treasury bonds, commonly known as BGTBs, are long-term debt instruments with maturities ranging from 2 years to 20 years. These bonds carry a fixed coupon rate, and interest is generally paid every six months.

When issuing treasury bills and bonds, the government announces a target amount it intends to raise.

Primary Dealer (PD) banks, appointed by the government, then submit bids in the market at specified interest rates.

In this auction process, bids offering comparatively lower interest rates are accepted first. In other words, interest rates are determined through market-based competition.

Primary Dealers purchase treasury bills and bonds directly from the government or the central bank. They subsequently sell these securities to investors in the market.

When the government issues new bills or bonds, PDs are required to participate in the auction and purchase a specified quantity. They later trade these securities regularly in the secondary market.

Prospective investors may wish to know which banks are involved in purchasing bonds and where they can invest.

According to Bangladesh Bank sources, Sonali Bank plays the most significant role in bond purchases.

Other notable banks include Agrani Bank, Janata Bank, City Bank, Eastern Bank, and Standard Chartered Bank. Investors may purchase bonds through these institutions.

Alternatively, investors may participate directly in auctions conducted by Bangladesh Bank through commercial banks. Since treasury bills are short-term instruments, both the principal and profit are returned together at maturity.

Interest rates on treasury bills vary depending on their tenure. According to Bangladesh Bank data dated 29 April, the rate for 91-day bills stands at 10.17 per cent, for 182 day bills at 10.49 per cent, and for 364 day bills at 10.64 per cent.

Treasury bonds generally offer higher returns. For example, interest rates range from 10.2 to 10.6 per cent for 2–3 year bonds, 10.75 per cent for 5 year bonds, 10.98 per cent for 10 year bonds, 11.15 per cent for 15 year bonds, and 11.23 per cent for 20 year bonds.

Government treasury bills and bonds are considered risk-free, and individuals from all walks of life in the country may invest in them.

Unlike other types of bonds, which often impose an upper investment limit, Treasury bills and bonds have no such cap. Investors may therefore invest any amount as they wish.

The minimum investment amount is Tk 100,000. Both resident and non-resident individuals, banks, non-bank financial institutions, insurance companies, provident fund authorities, and corporate entities are eligible to purchase these instruments. They are also tradable in the secondary market.

To invest in treasury bills and bonds—that is, to purchase them—an investor must open a Business Partner Identification (BP ID) account with Bangladesh Bank.

This process is generally completed through a commercial bank. Applicants must provide a National Identity Card (NID), Taxpayer Identification Number (TIN), photographs of the applicant or nominee, and bank account details.

Individuals or institutions may also purchase bills and bonds from the secondary market. In such cases, the investor must submit a cheque equivalent to the value of the securities to the designated branch.

Upon maturity, both the principal and interest on bills and bonds are transferred in due time from the Treasury Management Department of the head office to the respective branch.

However, investors may sell these securities at any time before maturity, provided they notify the Primary Dealer (PD) bank.

The government has recently appointed two additional private banks as Primary Dealers. In this round, BRAC Bank and Pubali Bank have been selected.

On Thursday, the Finance Division of the Ministry of Finance informed the managing directors of the two banks of this decision through separate letters.

As a result, the total number of PD banks in the country has increased from 24 to 26.

When asked for a reaction to the appointment as a new PD, Tareq Refat Ullah Khan, managing director of BRAC Bank, told Prothom Alo on Saturday, "We applied a few months ago. It is good that the government has granted approval. We can now play a role in the bond market as a Primary Dealer."