Bangladesh's Treasury Bond Yields Climb as Government Leans Harder on Bank Borrowing

Bangladesh's government is borrowing more heavily from its own banks, and the bond market is starting to demand a higher price for it. Yields on long term treasury bonds climbed again this week, with the 15-year bond rising to 9.34 percent from 9.10 percent and the 20-year bond moving to 9.35 percent from 9.13 percent, according to auction data reported on September 23. The increase came just as the finance ministry told commercial bank representatives it plans to raise an additional Tk21,000 crore outside the regular borrowing calendar over the next two months, Tk15,000 crore in October and Tk6,000 crore in November.

A senior Bangladesh Bank official who briefed reporters on the auction results put the cause plainly. Revenue collection has fallen short of target again this year, the official said, and that gap is pushing the government to lean harder on commercial banks to cover its spending. It is a familiar story by now, but one that keeps getting more expensive to tell.

A borrowing habit that has outgrown its own targets

The scale of the problem became clear earlier this month, when the finance ministry's own numbers showed just how far government borrowing had drifted from plan in the fiscal year that closed in June. Bank borrowing for FY26 came in at Tk165,538 crore, blowing past even the revised target of Tk118,000 crore by more than Tk47,500 crore, and dwarfing the original plan of Tk104,000 crore set at the start of the year. Two forces drove the overshoot: foreign financing fell 20 percent year on year, leaving a hole that had to be filled domestically, and the National Board of Revenue collected just Tk415,500 crore against a target of Tk503,500 crore, or roughly 82.6 percent of goal. It was the tenth consecutive year the NBR missed its revised collection target, a streak that analysts say has quietly become one of the more consequential facts about the Bangladeshi economy.

Towfiqul Islam Khan of the Centre for Policy Dialogue described the pattern bluntly when the FY26 figures came out, calling the scale of the overshoot a sign of a noteworthy absence of fiscal discipline. Ashikur Rahman of the Policy Research Institute made a related point about where all that borrowed money is coming from. Banks, he said, naturally prefer the safety of government securities over the risk of lending to private businesses, and every taka they put into treasury bonds is a taka not available for a factory expansion or a working capital loan. The numbers bear that out starkly. Public sector credit grew about 30 percent by the end of June, while private sector credit growth crawled along at just 4.47 percent, a gap that has only widened since, with July's private credit growth figure landing at 4.62 percent even as the government kept borrowing.

Why yields are the part everyone is watching now

Bond yields matter because they set the price of that borrowing habit, and lately the price has only moved in one direction. When investors, mostly banks and other financial institutions, sense that the government needs money badly enough to come back to the market again and again, they ask for a better return to keep lending. That is essentially what has been happening through September, and the fresh Tk21,000 crore in additional borrowing for October and November all but guarantees the pressure will not ease soon.

The timing adds another layer. The US Federal Reserve raised its own benchmark rate this month from 3.75 percent to 4 percent, its first increase in three years, a move BD Financial Review covered in detail last week for its effects on Bangladesh's dollar costs and debt servicing bill. A more expensive dollar makes any external borrowing, including the sovereign bond Bangladesh is preparing to sell internationally by December, a tougher sell unless domestic fundamentals look solid. Rising local treasury yields, in that light, cut two ways. They reflect real strain in the government's finances, but they also signal to would be international bondholders that Bangladesh's debt still finds buyers at home, which is not nothing heading into a landmark first overseas issuance.

Bangladesh Bank, for its part, has been pulling in the opposite direction on its own policy rate, cutting it from 10 percent to 5.5 percent in a bid to get private lending moving again after years of tight money. The awkward result is a bond market where government paper pays more even as the central bank tries to make private borrowing cheaper, a contradiction that mostly reflects how much of the banking system's lending capacity the government itself is now absorbing.

Metric	Earlier figure	Latest figure
15-year treasury bond yield	9.10%	9.34%
20-year treasury bond yield	9.13%	9.35%
FY26 bank borrowing (actual vs revised target)	Tk118,000 crore (target)	Tk165,538 crore (actual)
Private sector credit growth	4.47% (June)	4.62% (July)
NBR revenue collection vs target, FY26	Tk503,500 crore (target)	Tk415,500 crore (collected)

What the FY27 budget suggests comes next

The government's own budget planning for the current fiscal year does not point toward the pressure easing. The FY27 budget, set at Tk938,000 crore, carries a tax collection target of Tk604,000 crore, about 45 percent higher than what the NBR actually brought in during FY26. Planned domestic borrowing for the year stands at Tk127,000 crore, with Tk112,000 crore of that earmarked to come from the banking sector specifically. Given that FY26's actual bank borrowing already exceeded its own more modest target by close to 40 percent, few analysts expect FY27 to land neatly on plan either, especially with the NBR currently reconsidering its recent shift to quarterly VAT payments after collections fell roughly 20 percent year on year in July and August, a separate story BD Financial Review has been tracking this month.

For ordinary savers, the immediate effect of rising yields is a modestly better return on government savings instruments, a small silver lining in an otherwise strained fiscal picture. For businesses hoping to borrow to expand or restock, the picture is less encouraging. With banks continuing to find government paper an easier and safer place to park their money, the credit that would normally flow toward private investment keeps getting squeezed, a dynamic that economists like MA Razzaque of RAPID have flagged as evidence that revenue collection, not just spending discipline, is now the binding constraint on how much room Bangladesh has to grow.

The next test comes quickly. October's Tk15,000 crore tranche of additional borrowing will be the first real signal of whether yields keep climbing or start to level off, and whether the government's revenue performance in the new fiscal year gives the NBR, and the bond market, any reason for relief.