Secondary market interest rates should be considered when evaluating Treasury bonds: BB
The new instruction was issued to banks in a circular from the Debt Management Department of the central bank.
The Bangladesh Bank has asked commercial banks to consider secondary market yields or interest rates when revaluing their held-for-trading (HFT) category Treasury bonds.
A bond's yield is the return to an investor from the bond's interest, or coupon, payments. It can be calculated as a simple coupon yield or using a more complex method, like yield to maturity.
The new instruction was issued to banks in a circular from the Debt Management Department of the central bank.
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Earlier, banks used primary market yields or interest rates to revalue Treasury bonds classified as held for trading.
Welcoming the central bank's directive, a private bank's deputy managing director said the secondary market's yield or interest rate is considered in revaluing Treasury bonds in all countries of the world.
"The primary market rate used to be taken into consideration in our country alone. Changing this will now benefit financial institutions," he added.
Pointing out that there is a difference between the interest rate of the primary bond market and the interest rate of the secondary bond market, he explained that because the government regulates primary market interest rates, they may not accurately reflect market conditions.
On the other hand, secondary market rates represent the market comparatively better. From that point of view, he hoped this decision by the central bank would help develop the secondary bond market.
A senior official of the central bank said primary bond auctions are held once or twice a month. As a result, revaluing HFT category Treasury bonds at the interest rate of these bonds is not accurate.
"Bank books show losses. On the other hand, if the interest rate of the secondary market is considered, it will definitely be more convenient for the banks to calculate," he added.
However, the central bank's circular has called for the primary market yield or interest rate to be taken into account as before in the revaluation of Treasury bills.
