What are treasury bills and bonds?

Treasury bills or bonds are a type of government debt like savings bonds and prize bonds. Through this, the government borrows from internal sources to meet its budget deficit. It is considered a completely risk-free investment as it is issued by the government.

Typically 91-day, 182-day and 364-day maturity Treasury bills and 2-year, 5-year, 10-year, 15-year and 20-year maturity bonds are regularly issued. Besides, sometimes 14 days treasury bills are also issued for special reasons. In case of treasury bills, principal with interest at maturity and in case of treasury bonds interest and principal at maturity are paid every 6 months.

Basic Concepts of Treasury Bills and Bonds

Treasuries Bills and Bonds have increased in interest rates in the last one year, lowering the ceiling on investment in savings bonds and slab-based different rates for paying profits, more publicity in the media about the benefits of investing in Treasury Bills and Bonds, all these reasons have recently made Treasury Bills and Bonds an attractive instrument for investment. being considered as

As I am working in securities section of Bangladesh Bank, Motijheel office, lately many friends, colleagues and acquaintances have been contacting me asking for details about treasury bills and bonds. Hence, this small effort of mine is intended to help provide a basic understanding of the process of buying Treasury Bills and Bonds and its pros and cons.

When and how are treasury bills and bonds sold?

Treasury Bills or Bonds are sold through an online auction held on a specific day of every month through an own software (Financial Market Infrastructure Module) of Bangladesh Bank. Banks or financial institutions bid or participate in the auction on behalf of their own institutions or customers.

The auction calendar is regularly published on the website of Bangladesh Bank, where the total amount of any term treasury bill or bond will be sold on different days of the current month is announced. Auctions are usually held every Sunday for Treasury Bills of various durations and every Tuesday for fixed maturity Treasury Bonds. Generally, auctions of 2-year, 5-year and 10-year Treasury bonds are held on the 1st, 2nd and 3rd Tuesdays of the month respectively, and auctions of 15-year and 20-year Treasury bonds are held on the 4th Tuesday of the month.

Auction calendar link:

What is the process of buying treasury bills and bonds?

The first step in buying treasury bills or bonds is to open BP ID (Business Partner ID). The customer can open the BP ID by contacting his bank or financial institution (except Shariah based banks) and filling the form prescribed by Bangladesh Bank for opening BP ID along with necessary documents.

The details of BP ID opening form and required documents according to customer type are given in Bangladesh Bank’s DMD Circular No-01/2021 dated 22/02/2021 which anyone can download from Bangladesh Bank’s website.

Link: https://www.bb.org.bd/en/index.php/mediaroom/circular

The image of the circular is given in the comments.

The second step is to submit the Bid Submission Form to your bank or financial institution at any time before the auction to place a bid in a specific auction and keep the money as the respective bank. In this case the concerned bank usually takes a check or debit authorization from the customer.

Note that the customer can submit two types of bids:

1. Specifying a specific Rate/Price i.e. Competitive bid.
2. Without mentioning any Rate/Price i.e. Non-competitive bid.

Banks or financial institutions place competitive/non-competitive bids on behalf of their own institutions or customers at predetermined times on the auction day. At the end of the auction, the auction committee of Bangladesh Bank takes a decision on the rate of bids to be accepted in the said auction and it is informed to the concerned banks or financial institutions through the FMI system. Later, banks or financial institutions provide their customers with the Auction Allotment Report, which contains the amount of allocation against the customer’s bid, the interest rate, the calculation of how much money will be deducted for settlement and the details of the purchased treasury bills or bonds. Banks or financial institutions provide Securities Holding Report to the customer subject to deducting the settlement amount from the customer’s account on the working day after the auction.

What is the rate of treasury bills and bonds?

Treasury bills and bond rates are fixed and not predetermined. This is determined by the auction committee on the day of the auction. Those who are allotted among the participants in the said auction will get the profit at the fixed rate.

The latest auction rates are as follows:

91 Day Treasury Bill – 11.65%

182 day Treasury bill – 11.80%

364 Day Treasury Bill – 12.00%

2 Year Treasury Bond – 12.30%

5 Year Treasury Bond – 12.45%

10 Year Treasury Bond – 12.60%

15 Year Treasury Bond – 12.70%

20 Year Treasury Bond – 12.80%

Treasury bill and bond rates and auction results are regularly published on Bangladesh Bank’s website.

Link: https://www.bb.org.bd/en/index.php/monetaryactivity/treasury

Some advantages and disadvantages of investing in treasury bills and bonds:

1. There is no upper limit of investment in this case like Savings Certificate. One lakh or multiples thereof can be invested in any account.
2. Investments in treasury bills or bonds up to a maximum of five lakh rupees like savings bonds are considered tax deductible investments.
3. Only 5% tax is deducted at source on interest earned on investment in treasury bills or bonds. However, unlike savings certificates, it is not considered as final tax in this case.
4. Treasury bills or bonds cannot be encashed before maturity. However, it can be bought and sold in the secondary market.