The country's secondary bond market, it seems, is not yet ready to transact business up to expectations. Factors such as the absence of a wide variety of products, procedural complexities and lack of investors' awareness continue to affect its normal operation.
The Dhaka Stock Exchange (DSE) launched the secondary trading of bonds in the early 2000s. Barring the inaugural day, there had been not a single transaction of bonds until October 11 last. Thus, the secondary bond market was nonexistent for nearly two decades though most people have been emphasising the need for making the country's bond market vibrant.
But vibrancy does not come automatically. The stakeholders concerned are required to fulfil the necessary conditions to make it happen. The first and foremost requirement is the availability of government and corporate bonds in sufficient volume. Timely disbursement of yield benefits to the bondholders is yet another important issue. Besides, creating necessary awareness among investors about safe investment in bonds is also seen as a priority task of the market intermediaries.
In the absence of corporate bonds, there has been demand from all directions to make available government bonds to infuse life into the secondary trading platform. After a long delay, the trading of treasury bonds began on October 11 last with much fanfare when transactions involving a small amount had taken place. Since then, reportedly, there have been no transactions of government bonds that are considered risk-free and safe for investors. Two different trading systems followed by the Bangladesh Bank and the bourses have appeared as a major obstacle. The BB allows trading of T. bonds through Beneficiary Participant Identification (BPID) while the secondary trading platform of the capital market conduct transactions through Beneficiary Owners (BO) accounts. Then again the 2.0 per cent circuit breaker that the securities regulator has introduced recently to stall the freefall of the market is also viewed as a barrier to the smooth trading of bonds by the investors concerned.
Presently, according to a report published in this paper, there are 250 treasury bonds with a maturity span between 2.0 and 20 years and a net value of over Tk 3.0 trillion. The volume of money involved in the bonds is huge and more than what the secondary market can absorb. But the supply of T. bonds to the secondary market remains a problem. The primary dealer banks or for that matter other bond-holding banks are not interested in offloading their instruments under the prevailing circumstances. Besides, general investors are still not aware of the pros and cons of investing in bonds --- government or otherwise. There has to be a widespread campaign to popularise bonds among the investors who are more eager to make a profit overnight. Small investors who dominate the market are not literate enough to invest in the right kind of issues. Investment in bonds is a bit different from putting money in general stocks.
Moreover, one of the basic aims of having a vibrant bond market is ensuring long-term financing for private sector projects through the floatation of corporate bonds. In Bangladesh, in most cases, banks issue perpetual bonds to replenish their capital in line with the Basel-II requirements. Banks themselves subscribe to those bonds, none else. This does not help meet the long-term financing need of the private sector. The value of corporate bonds is worth less than US$ 0.5 billion while the value of T. bonds is over US$18 billion in Bangladesh.
The country needs investments worth over $200 billion to achieve the goal of becoming a developed country by 2040. Where will such a huge volume of money come from? A vibrant bond market can be a very potent source for this purpose.
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