Published in The Financial Express on Sunday, 2 February 2014.
BB keen on stimulating secondary bond market
The Bangladesh Bank (BB) is keen on stimulating the secondary bond market during the remaining months of the current fiscal
Jashim Uddin Haroon
The Bangladesh Bank (BB) is keen on stimulating the secondary bond market during the remaining months of the current fiscal year as a strategy to strengthen domestic debt market.
It also wants to issue an Islamic bond of three months’ tenure within the fiscal year. Such bonds aim at ensuring better liquidity management of Islamic banks, according to the latest monetary policy.
The BB has already advertised in newspapers inviting people and overseas investors to invest in the long-term government bonds the profit of which is payable in every six months.
Currently, 2, 5, 10, 15 and 20-year treasury bonds are available in the market with online trading platform.
The government borrows from this type of long-term tools to meet its budget deficit. It also borrows by using short-term bills to meet its urgent financing.
However, many economists say the government now wants to borrow less from treasury bills on the ground of availability of liquidity in the public sector.
They, however, said the BB’s move will spur the secondary bond activity. A sizeable foreign exchange might be earned through this type of sovereign commitment by the state, they added.
Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh (PRI) said this is a government strategy to reduce its dependency on short-term borrowing tools. He said the government borrowing has been reduced in the wake of slow implementation of different projects.
“I think this is the right time to switch over to bonds as it will help develop the secondary market,” Mr. Mansur added.
Khandker Golam Moazzem, additional director at the Centre for Policy Dialogue (CPD) said: “I don’t know about the feedback of the BB’s advertisement with regard to investment in bonds. But the move is quite right to promote the bond market.”
Mr. Moazzem said the main problem in investing in bonds is its high denominations. Currently, the minimum denomination of a bond is Tk 100,000.
The government borrowed Tk 64.64 billion from the bonds during the last July-December period. It also borrows Tk 64.88 billion from the short-term bills that range between 28 days and 365 days.
However, the Ministry of Finance recently approved auction calendar for both bills and bonds.
From March to July, the ratio of auctions for bills and bonds will be 30:70. It was planned while preparing the national budget for 2013-2014 fiscal on an equal ratio basis.