Foreign investment in Bangladesh's treasury bonds shrank astronomically in the last two fiscal years on the back of the depreciating local currency against the US dollar.

In fiscal 2016-17, foreign investment in T-bonds stood at Tk 43 crore, down from Tk 429 crore a year earlier, according to data from the Bangladesh Bank. And in fiscal 2014-15, it was Tk 1,452 crore.

Another reason for the decline is the lower interest rate on government securities in recent years, said central bank officials and an expert.

Foreign investment in the tools might decline in the coming days if the exchange rate of the taka and interest rate on T-bonds decrease further, said Ahsan H Mansur, executive director of the Policy Research Institute.

"The withdrawal of foreign investment from securities has hit the country's foreign exchange reserves hard," he added.

The interbank exchange rate increased to Tk 80.59 in June 2017 from Tk 77.80 two years earlier, according to central bank statistics.

Due to higher interest rates, sales of savings certificates continue to climb, which has forced the government not to take the low-cost borrowing from the T-bills and bonds, said a BB official.

The government has cut back on taking loans from securities, which led to the declining interest rate on T-bonds, he added.

The interest rate on different T-bonds fell to 8.05-5.05 percent in June last year from 10.36-7.80 percent two years earlier. In 2013, the central bank allowed foreigners to invest in securities with a view to boosting the country's foreign exchange reserves.

They initially showed interest in parking since the central bank took various steps to attract them.

In 2014, the BB introduced non-resident foreign currency account and non-resident investors taka account for foreign investors so that they can make payment for the purchase value of the T-bonds.

The foreigners have to maintain the accounts with a local bank.

Coupon payment, resale and redemption are freely transferable abroad in foreign currency after deduction of applicable taxes.

Besides, T-bonds purchased by a non-resident are freely resold anytime to any resident or non-resident.