New bond benchmark set to encourage primary dealers

As the benchmark for government securities has been set, bankers hope it will encourage primary dealers, as well as banks, to trade bonds.

They think the benchmark will help the bond market develop. They are also hopeful that it will have a positive impact on corporations and individuals.

Arequl Arefeen, head of treasury at Bank Asia, told The Business Standard there did not used to be a standard for bond trade.

He said the secondary market will now be more vibrant as the central bank has set a standard, adding that individuals who have high income and corporations will also be interested in investing in bonds.    

"The maximum limit on the amount you can invest in sanchayapatras is Tk50 lakh, but there are many investors who want to invest more than that," said Arequl.

But it is not possible to directly invest in government bonds as an individual, he said.

"An investor has to invest in bonds through banks. In that case, banks act on behalf of the investor in the trade of bonds," he added.        

The central bank on Monday issued a circular on determining benchmark treasury bonds, from existing treasury bonds of different terms, in order to develop the government securities market.

The bonds have been divided into six classes and 30 bonds have been selected as benchmark bonds from each class. All primary dealers have been instructed to determine the secondary market-based yield by increasing the trade of bonds.   

The central bank sources said banks, in the past, would not have a clear idea about the bond trade market in advance as there was no specific benchmark. Now they will have a clear idea about 30 bonds.

This, the Bangladesh Bank thinks, will develop the market.    

The head of treasury of a bank, who did not want to be named, agreed with the central bank's view. He told The Business Standard the new circular would make the primary dealers more active.   

"Those who buy government bonds and trade those through banks are called primary dealers. There are almost 20 of them at present," he said.

The banker said primary dealers were in no rush in the past to be involved in the bond market. 

"Now that the benchmark has been set for 30 bonds, they will be interested. This will help make the market vibrant," he added.  

He further said the new circular requires primary dealers to reveal in advance the price at which they will trade the bond, which will increase the participation of buying banks in the bond market. 

But the banker is doubtful about the effectiveness of the coupon rates set for the six classes of bonds. He thinks market demand will determine this rate. 

In the central bank circular, 30 bonds, with terms ranging between two years and 20 years, have been benchmarked under six classes. Their coupon rates have been set between 5.5% and 10.5%.   

The outstanding amount of treasury bills and bonds in Bangladesh is now around Tk3 trillion. It had already crossed Tk450 billion in the first four months of the current fiscal year, said an official of the central bank.