Treasury Bill Rates Falling: What Investors Should Watch

Nepal’s treasury bill (T-bill) rates have seen a significant decline in recent years, reflecting improving liquidity conditions in the financial system and easing inflationary pressures. The 91-day T-bill rate, which peaked at 10.66% in FY 2021/22during a period of tight liquidity and high inflation, fell to 6.35% in FY 2022/23, further to 3.00% in FY 2023/24, and now stands at 2.95% in FY 2024/25, with mid-August 2082/83 data showing 2.65%. Similarly, the 364-day T-bill ratedropped from 10.19% in FY 2021/22 to 7.00% in FY 2022/23, 3.19% in FY 2023/24, and currently hovers around 2.98%–2.68%.

For investors, these falling yields carry both opportunities and risks. On the one hand, lower T-bill rates reflect a system flush with liquidity, thanks to strong remittance inflows, a current account surplus, and record-high foreign exchange reserves above USD 20 billion. With inflation cooling to just 1.68% in mid-August 2082/83, the pressure on interest rates has eased, creating a favorable environment for borrowers and businesses. This signals that the cost of financing—both for the government and private sector—is declining, which could support investment and economic recovery.

On the other hand, falling T-bill yields mean reduced returns for investors, particularly banks and financial institutions that rely on government securities as a safe investment option. With deposit rates also trending lower (weighted average 4.02% in mid-August 2082/83), investors may find it harder to generate attractive risk-free returns. This could push some institutional and retail investors toward riskier assets such as equities, real estate, or corporate bonds in search of higher yields.

The bigger question is how sustainable these low rates are. If domestic credit demand revives or global commodity prices rise, interest rates could rebound. Moreover, government borrowing needs remain significant, with domestic debt standing at 20.8% of GDP in FY 2024/25. A sudden increase in fiscal financing requirements could put upward pressure on T-bill yields.

For now, investors should monitor three key signals: (1) liquidity trends in the banking sector, (2) inflation movements, and (3) government borrowing patterns. Falling T-bill rates present a short-term opportunity for cheaper financing, but investors should be cautious about long-term shifts that could reverse the low-yield environment.