Introduction:

Treasury bill or T-bill is a short-term debt issued by a national government with a maximum maturity of one year. Treasury bills are sold at discount, such that the difference between purchase price and the value at maturity is the amount of interest. Although the maturity of T-bill shouldn't be more than one year, in Bangladesh, 2-year and 5-year securities are also regarded as T-bills. Treasury bills are fully guaranteed by the government and hence are free from default risk. The biggest reason that T-Bills are so popular is because they are one of the few money market instruments that are affordable to the individual investors. Basically, investors invest in T-bills due to: 1) maintain the Statutory Liquidity Reserve (SLR), 2) maintain adequate liquidity 3) earn yields 4) utilize properly huge idle cash in banks, and 5) Safe guard their investments. Since they mature so quickly, T-bills are simply sold at a discount to their face value at maturity. The discount is determined by the interest rate. If it is a six-month bill with a 5% discount rate, the investor pays 95% of the face value or Tk. 950, and then receives Tk. 1,000 back in six months. T-bills are indirect tools for monetary management of the central bank of a country. Six types of T-bills are available in Bangladesh: 28-day, 91-day, 182-day, 64-day, 2-year, and 5-year government treasury bills are duly issued by the Bangladesh Bank through weekly auctions at rates determined by the market.

Question 1: What maturity values T-Bills have in Bangladesh?

Ans: Bangladesh Bank issues treasury bills and bonds of different maturities. The securities with maturity not over one year are considered as T-Bills. At present Bangladesh Bank issues following type of securities; 91-day, 182-day, 364-day, 5-year & 10-year, 15-year & 20-year Treasury Bonds. These bonds an be classified in the following table; Maturity 91 Days 182 Days 364 Days 5 Year 10 Year 15 Year 20 Year Treasury Bond Treasury Bill Instrument

Question 2: Who are the Primary Dealers in the Bangladeshi money market?
Ans: A pre-approved bank, broker/dealer or other financial institution that is able to make business deals with the central bank of a country, such as underwriting new government debt are called the primary dealersi. At present there are fifteen primary dealers in Bangladesh who are entitled to purchase T-bills from the Bangladesh Bank through auctions.. Among the PDs, twelve are commercial banks and the other three are non-banking financial institutions. Sonali Bank, Janata Bank, Agrani Bank, Jamuna Bank, NCC Bank, Prime Bank, National Bank, Uttara Bank, Southeast Bank, Mutual Trust Bank, AB Bank, Mercantile Bank, Lanka Bangla Finance,

Industrial Promotion and Development Corporation(IPDC)ii and International Leasing And Financial Services Limited.

Question 3: How T-bills are auctioned?

Ans: The auction for Treasury Securities (Bangladesh Government Treasury Bills) is conducted on a competitive bidding process. Competitive bids must be submitted on a yield basis. Initially primary dealers maintaining current accounts with Bangladesh Bank are asked to submit bids. After the bids are submitted, they are arranged from the lowest-yield bid to the highest yield bid. Starting from the lowest yield bid, all competitive bids are accepted until the amount to be distributed to the competitive bidders is completely allocated. The highest yield accepted by the treasury is referred to as the cut-off yield. Bids quoted higher than the cut-off yields are not accepted. Accepted bids are noted in the newspapers. In the following table a sample result of recent T-Bills issued are provided;

Issue date

Tenor and name

15.04 91 .12 days T.Bill Source: Bangladesh Bank Websiteiii

Bids received No Face Range of value of yields bids (Cr.Tk. (%) ) 11 450 11.2311.50

No of bids

Face value (Cr.Tk. ) 57.48

Bids accepted Sale Range Weighted value of yields average (Cr.Tk.) (%) Price (taka) 55.91 11.23 97.28

Cut off yield (%)

11.2302

For the T-Bill market, Bangladesh Bank works as an agent of the Bangladesh Government. TBills are usually issued on a bi weekly basis. That is twice every month. On the whole, T-bills are mainly used to satisfy statutory liquidity requirements (SLRs).

Question 4: Who are the Secondary Market Players?

Ans: Currently, government securities are traded in the two places

the Over the Counter (OTC) segment and the organized segment at the stock exchanges. The Central Depository Bangladesh Ltd (CDBL) acts the depository function for all securities including government securities and corporate bonds.iv

OTC segment: The BB has selected twelve banks and three non-bank financial institution as primary dealers (PDs) to handle secondary transactions of T-bills and other government bonds. All the other banks other than the PDs and NBFIs participate in the secondary market to purchase T-Bills from the dealers.

Definition of 'Primary Dealer'. INVESTOPEDIA. Retrieved April 21, 2012 from http://www.investopedia.com/terms/p/primarydealer.asp ii BB declares Jamuna Bank as the best primary dealer (2011, March 4).Hawker.Com.BD. Retrieved April 21, 2012, from http://www.hawker.com.bd/news_details.php?news_id=123839&news_category_id=5&val_lan=2. iii Primary Issue auctions of 91-day, 182-day, 364-day, 5-yr & 10-yr, 15-yr & 20-yr Treasury Bonds. Retrieved April 21, 2012 from http://www.bangladesh-bank.org/monetaryactivity/treasury.php.
iv

Mu, Y. (2007, July 14). South Asia Bond Markets: Bangladesh. World Bank: Working Paper Series. Report. Retrieved April 22, 2012 from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=999713.