Govt. has decided to issue BGTB in pursuant of 5, 10, 15, 20 years.

Involvement

1. BD Govt.

2. BB

3. BGTB and

4. Holder - individual or institutions in whose name a BGTB is held in the SGL account or

IPS account maintained with the BB by a bank or FI

5. PD - FI nominated by BB

Eligibility

1. Individual and institutions resident in BD (Banks, Non-bank FI, insurance companies,

management of provident fund, pension funds)

2. Non-residence BD’s can be eligible to purchase BGTB with coupon payments and

resale/redemption proceeds transferable abroad in foreign exchange, provided that-

a) The purchase is made with funds from a non-resident foreign currency account with a

bank in BD in the name of the purchaser

b) The BGTB purchased by a non-resident is not resold to a resident in BD within 1 year of

purchase. Resale to other non-residents subject to fulfillment of above would however be

freely transferable

Debt management of the Government

BB borrows money from BB and commercial bank creating debt. Government’s domestic

debt from the banking system is the largest financial portfolio. For deficit budget financing,
govt. can borrow from local and foreign sources. We are concern about the banking system

debt of the govt. it may be noted that the govt.’s overall budget deficit is 5% of GDP. While

taking money from the systems, auctions of govt. treasury bills and bonds are conducted.

Treasury bills are treated as short term instrument ranging from 91 days to 364 days. The

treasury bills in Bangladesh are termed as 91-day, 182-day and 364-day. Government

treasury bonds of different tenures are treated as long term debt, which are ranged from 1

year to 5 year. 5-year, 10-year, 15-year and 20-year bonds are in operations for debt

management. In the budget, the borrowing requirement of the govt. is mentioned.

Accordingly, ministry of finance and BB prepare auction calendar to be borrowed in each

auction. The treasury bills auction is held followed French style norms. Here, the bidders

submit their bids quoting price from higher to lower resulting lower to higher price.

Considering the bid amount and rate, the auction committee determines the cut-off rate in

each auction. The weighted average rate of treasury bills is calculated for yield curve.

Following the yield curve rate, banks and FI’s calculate bills price. Of the interest rate is high

then the price is low in the balance sheet of the commercial bank. Following mark to mark

pricing banks adjust their bills price. Auction of govt. bonds like developed countries offers 2

coupons in a year. The cut-off coupon rate is the rate of the bond rather weighted average

rate of bills. The banks which offer lower than cut-off rate in auction must deposit premium

amount to the BB. Cut-off rate of bond is used for bond pricing. Bills and bonds are traded in

the OTC. Secondary market of govt. securities is not much effective in BD. Bids quoted

above the cut-off rate shall not be accepted. The bond shall be priced at par in the cut-off

level. Bidders quoting a yield lower than cut-off yield shall pay a premium along with the

full purchase price to the govt. at the time of issuance of the bonds. BGTB’s held by banks
and FI’s on their own account shall qualify as approved security for Statutory Liquidity

Requirement (SLR) fulfillment. BGTB’s held on behalf o0f clients will not be eligible for

this purpose.

Each bank or FI submitting bids in the auctions shall be eligible to maintain 2 SGL accounts

with BB, Motijheel office, one for their own position and other for the Investment Portfolio

Securities (IPS) account for their client’s position. All transactions between the BB and the

SGL account holders and those between the SGL holders and their clients shall be recorded

by the BB in these 2 SGL accounts (Own or IPS) separately. The SGL account holders at

their end shall also maintain SGL accounts separately for their own and client’s position.