Bangladesh Bank is set to repurchase government treasury bonds worth nearly Tk 6,667 crore as part of an effort to manage the government’s debt obligations more effectively. A reverse auction for the two-year treasury bonds will be held on Wednesday, 7 October.
According to Bangladesh Bank, bonds with a total outstanding value of Tk 6,666.58 crore will be offered for repurchase through the auction. The securities were issued on 6 November 2024 and carry a coupon rate of 12.30 per cent. Their scheduled maturity date is 6 November 2026.
The central bank announced the auction in a notice issued on 5 October. The repurchase will be conducted through a multiple-price reverse auction, while settlement of the accepted bids is scheduled for 12 October.
How the auction will work
Primary dealer (PD) banks will be allowed to submit bids directly in the auction. Non-PD banks and financial institutions maintaining current accounts with Bangladesh Bank will be able to participate through the relevant PD banks.
Participating institutions can submit competitive bids for securities held in their own accounts. They may also submit both competitive and non-competitive bids on behalf of their clients.
For each bid, participants must specify the price at which they are willing to sell the bonds, based on a face value of Tk 100, along with the amount of securities they intend to sell.
Electronic bids must be submitted through Bangladesh Bank’s Financial Market Infrastructure (FMI) system between 10am and noon on the auction day. In exceptional circumstances, participants may submit bids manually in sealed envelopes, subject to prior approval from the central bank.
Move aimed at easing maturity-related pressure
The repurchase is part of the government’s Liability Management Operation (LMO), which is designed to improve the management of public debt and reduce pressure associated with large repayments falling due at the same time.
With the bonds scheduled to mature on 6 November, the government could otherwise face a sizeable repayment obligation within a short period. Buying back the securities before maturity provides an opportunity to manage that liability ahead of schedule and spread the pressure more effectively.
The initiative may also provide greater liquidity flexibility for holders of government securities. Investors who need to adjust their portfolios or realise their investment before the scheduled maturity can participate in the repurchase process through the prescribed bidding mechanism.
Government treasury bonds are an important component of the domestic borrowing system, allowing the government to raise funds while providing financial institutions and other eligible investors with instruments for managing their investments and liquidity. Changes in the maturity profile of these securities can also influence how government borrowing and repayments are managed over time.
In this case, the bonds being targeted for repurchase were issued exactly two years before their scheduled maturity. With an outstanding amount of around Tk 6,666 crore and a 12.30 per cent coupon rate, the planned operation represents a substantial transaction in the government securities market.
The reverse auction will determine the prices at which eligible bondholders are willing to sell their holdings back to the central bank. Once the accepted bids are settled on 12 October, the government’s outstanding liability associated with the repurchased securities will be reduced.
The operation therefore serves two related purposes: easing the concentration of government debt repayments around the November maturity date and providing additional flexibility in liquidity management within the government securities market.