The big jump in secondary transactions in government fixed-income securities during the last fiscal year reflects both strength and weakness of the country's financial market. Bangladesh Bank statistics showed that the value of secondary trading reached Tk 10731.67 billion (or Tk 10.73 trillion) in FY26, up 234 per cent from Tk 3210.56 billion in FY25. This is the first time secondary turnover has crossed the Tk 10 trillion mark. The turnover includes both the buy and sell of securities.
There are two types of government fixed-income tradable securities: treasury bills and treasury bonds. Treasury bills are short-term, while treasury bonds are medium- and long-term. Treasury bills mature in less than one year and are issued to meet the government's short-term funding needs. The regularly issued tenures of T-bills are 14-day, 91-day, 182-day, and 364-day. Treasury bonds are generally used for budget deficit financing and long-term financial needs. Currently, government bonds have maturities of 2-year, 3-year (floating-rate), 5-year, 10-year, 15-year, and 20-year. Both bills and bonds are tradable in the secondary market.
Treasury bonds are the most widely referenced fixed-income instruments in the country's debt market. These securities, issued by the government of Bangladesh, form the backbone of the country's borrowing programme. These also serve as benchmarks for interest rates across the entire financial system, though benchmarking remains weak.
The question is: what were the factors that had prompted the big surge in the secondary trading of these government securities?
Bangladesh Bank, in its quarterly bulletin on government securities, mentioned that the secondary market demonstrated 'orderly yield movements, balanced issuance dynamics, and sustained trading activity.' In other words, these indicate a 'stable and well-functioning market environment amid evolving macro-financial conditions.' Although the central bank observed this in the third quarter (January-March) of last fiscal year, it applies broadly to the full year.
Government fixed-income securities are risk-free and a good investment option, especially for institutional investors, when the corporate securities market is small and investment options are limited.
Technically, no bond is entirely risk-free. That's why government bonds are sometimes categorised as low-risk bonds in many financial literatures. However, since government securities are backed by the sovereign guarantee of their governments, they are considered risk-free, meaning the return on investment is guaranteed. These bonds are less affected by market volatility than stocks or corporate bonds.
In Bangladesh, the capital market, comprising debt and equity markets, is still immature because mobilisation of capital for trade, business, and manufacturing is largely dependent on bank financing. The stock or equity market is dull despite various efforts over the decade to make it vibrant. Meanwhile, the bond or debt market is entirely dominated by government securities.
Government fixed-income tradable securities now offer investors lucrative returns, as reflected in their yields. For instance, the weighted average yield on 2-year Treasury bonds was 9.72 per cent in March this year, rising to 10.69 per cent in May. The yield is higher than inflation. Monthly inflation rates in March and May stood at 8.71 per cent and 9.42 per cent, respectively.
Individuals and institutions can invest in fixed-income government securities through primary dealer (PD) banks. Central bank statistics show that a few large banks dominate secondary trading of these securities. In January this year, a change was made regarding investment and trading. Now, only PD banks can participate directly in primary auctions, while non-PD banks can submit non-competitive bids only on behalf of their clients.
Four types of savings certificates issued by the National Savings Directorate (NSD) are major non-tradable fixed-income government securities. Individuals and investors can purchase them directly and encash them at maturity or earlier. There is now discussion to make these securities tradable, which would make the secondary market for government securities more vibrant. Since savings certificates offer higher returns, making them tradable could make rates market-driven and competitive.
A key factor in the big jump in secondary transactions in government fixed-income securities is slower growth of private-sector credit. Private sector credit growth dropped by around 5 per cent at the end of May this year, against a projection of 8.5 per cent at the end of June 2026. The annual monetary policy review for FY26, released by the central bank earlier this month, said lower growth in private-sector credit was due to lower credit demand from big corporations. The review explained: "Banks invested their excess fund in T-Bills and T-Bonds rather than credit disbursement, slowing investment, and mounting uncertainty in the economy. These conditions were further reinforced by the continued contractionary monetary policy along with the uneven liquidity situation within the banking sector."
In other words, the robust secondary-market turnover in government securities is not entirely productive. Banks and financial institutions are buying and selling bills and bonds more frequently to earn additional profits from risk-free investments.
As banks and financial institutions increasingly concentrate investments in government securities, they have become more reluctant to invest in manufacturing and industrial activities. Central bank statistics showed growth in industrial term loan disbursements was only 4.19 per cent in the first quarter of FY26, jumped to 59.31 per cent in the second quarter, then slowed to 21 per cent in the third quarter.
The higher level of classified loans -- it stood at 32.26 per cent of total outstanding loans at the end of March this year also made banks more cautious in lending. Finally, the central bank's tight monetary stance to curb inflation has made lending costly, prompting banks to turn to government securities.
The bottom line is that the big jump in secondary transactions of fixed-income government securities needs a critical examination, taking all relevant factors and indicators into account. Otherwise, it may provide a misleading picture of the financial sector.
