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Sunday, April 12, 2009

Bond market remains dysfunctional

The New Age

The secondary bond market has remained dysfunctional since its inception in 2005, depriving the capital market of the gains and benefits expected from it.
Since its inception at the Dhaka bourse on January 1, 2005, only a treasury bond lot was transacted on the secondary market.
IBBL Mudaraba Perpetual Bond, the only one corporate bond issued by Islamic Bank Bangladesh Bank Limited, however, showed better performance, DSE sources said.
‘No capital market can reach maturity without a strong bond market,’ said recently-retired chief executive officer of the DSE Salahuddin Ahmed Khan.
The capital market of Bangladesh is only equity based whereas no capital market becomes mature without a strong bond market, he said.
He said, ‘Once the government bond market will become vibrant, only then the private sector bond market will also grow.’
‘Primary dealers of treasury bonds show unwillingness to offer government bonds for sales in the secondary market, rather they hold bonds as reserve requirements,’ he said adding that the PDs should offer bonds for sales to make the secondary bond market vibrant.
Syed Abu Nasir Bukhtear Ahmed, chief executive officer of Agrani Bank, one of the primary dealers, however denied the allegation. ‘The allegation is baseless,’ he said adding, ‘We do not find investors who want to buy treasury bonds at the secondary market.’ ‘A number of other issues are impeding the development of the secondary bond market,’ he added.
The Bangladesh Bank earlier selected eight banks and a non-banking financial institution as PDs to handle the government-approved securities on the secondary bond market and issued a guideline for them.
The nine primary dealers entitled to deal in treasury bonds are the state-owned lenders Sonali, Janata and Agrani banks, private sector banks Prime, Uttara, Jamuna, Southeast and National Credit and Commerce, and lease financier International Leasing and Financial Services.
Market sources said unattractive yields on bonds, tax on interest incomes from treasury bonds and high per-unit value of treasury bonds made the bond market unattractive to investors. The value of per-unit of the treasury bonds is Tk 1 lakh.
General investors also do not have much confidence in the private sector as few corporate debentures are in default without any legal on moral recourse to the investors, they said.
Indicating the performance of IBBL’s bond, Salahuddin said, ‘The market requires more private sector bonds from banks and non-bank financial institutions to make the secondary bond market active.’
Currently, government bonds of five-year, 10-year, 15-year, and 20-year maturities are listed with the stock market.
Started with treasury bonds worth Tk 1,010 crore, currently treasury bonds worth Tk 24,340 crore are listed with the DSE, an official of the bourse said. There are also a corporate bond worth around Tk 276 crore and debentures worth Tk 57.6 crore, he said.



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