The government is increasingly leaning on short-term, high-cost borrowing through treasury bills as it grapples with a growing revenue shortfall in the final weeks of the current fiscal year.

In a record development, the interest rate on 91-day treasury bills surged to 12.10 percent in the latest auction conducted by Bangladesh Bank—marking the highest ever yield on this instrument.

According to central bank data, the rate has increased by 18 basis points in just ten days. On June 2, the interest rate stood at 12.02 percent, which at the time was the second-highest on record.

Treasury bills (T-bills), issued for tenures ranging from 91 to 364 days, are a key tool the government uses to meet short-term financing needs.

However, the steep rise in rates reflects deepening stress in the financial system.

Banking sector insiders say the spike in rates is largely being driven by a persistent liquidity crisis.

 They said banks are not able to provide the volume of funds the government is seeking and to  raise the necessary financing, the government is being forced to offer higher interest rate to secure necessary funding.

Arif Hossain Khan, Executive Director and Spokesperson for Bangladesh Bank, explained, "When banks have less liquidity and government demand increases, interest rates naturally go up. This is primarily determined by the forces of demand and supply."

A senior official from the treasury division of a private bank said, "Currently, banks are not showing as much interest in investing in treasury bills as before. One reason is the increased settlement risk due to the timely repayment required for funds taken from repo. On the other hand, there is also liquidity pressure within the banks."

Updated information from Bangladesh Bank indicates that treasury bill interest rates saw a slight dip in March this year but rebounded in April, increasing by 101 to 123 basis points. The rates then set new records in June.

Currently, the interest rate for 182-day treasury bills stands at 12.11percent, and for 364-day bills, it is 12.24 percent.

Due to their interest guarantee and lower risk, treasury bills are generally considered a relatively safe investment.