A memorandum of understanding (MoU), signed by five public and private agencies on Sunday last, could be the harbinger of a vibrant bond market in the country. The representatives of the Bangladesh Bank, the Bangladesh Securities and Exchange Commission (BSEC), two bourses and the Central Depository of Bangladesh Limited (CDBL) signed the MoU to transact treasury bonds (T-bonds) in the secondary market, possibly, in the early part of next month. Necessary preparations reportedly are now complete.
Bangladesh has an almost non-existent bond market now. Some financial institutions, including banks, and a few private entities, raise funds through debt instruments comprising subordinate, green Sukuk, perpetual and zero-coupon bonds. Banks following approval by the BSEC float perpetual bonds to strengthen their capital base. Such bonds are traded among a select group of buyers, primarily banks, through negotiations, and are not available in the secondary market for general investors. Thus, securities worth billions of Taka have remained beyond the reach of both bourses and general investors.
A vibrant bond market can provide financing for mega projects, belonging to both private and public sectors. Banks usually face multiple problems while offering long-term loans since their sources of funds are usually of a short-term nature. So, they are reluctant to offer such financing. Long-term bonds that usually carry attractive interest rates, more than what the banks offer with term deposits, could be a great alternative. However, only a vibrant stock market can make it possible. Everybody felt the need to have such a market, but nothing happened on the ground. For year after year, banks have floated perpetual bonds and traded those among themselves through negotiations. The decision to trade the T. bonds in the secondary market, hopefully, would bring about a change in that situation.
An energized bond market has all the potential to benefit the government as well. In a country like Bangladesh, none but the government plays a key role in the development of large infrastructures. The bond market could be an easy source of financing such projects through the sale of long-term T. bonds. But that is not possible without an active secondary bond market, as investors must offload their instruments whenever such a need arises. Issuing T. bonds for large project financing could help the government spend on other important issues. What, however, is important to attract general investors to a bond market is the creation of confidence. This is also true for the capital market. The start of the trading of the government T. bonds would, hopefully, help gain general investors' confidence. The stock market has been suffering from a lack of it. Mr Abdur Rouf Talukder, the outgoing finance secretary who would soon head the country's central bank, expressed the hope that the bond market would become vibrant with the launch of T. bond trading. As governor of the central bank, he is expected to play an important in making the bond market pulsating.
