Market intermediaries’ Treasury bond investment limit relaxed to boost liquidity

The Bangladesh Securities and Exchange Commission (BSEC) has reduced the investment limit of market intermediaries in Treasury bonds listed on the capital market by 2%.

Earlier, although there was an obligation to invest at least 3% of the portfolio, the market regulator has instructed the intermediaries – merchant bankers, portfolio managers, asset managers, stock-dealers, and mutual funds – to invest at least 1% of their portfolios in listed Treasury bonds.

Apart from reducing the investment limit, the commission has also extended the time till 30 June this year to ensure a 1% investment in Treasury bonds.

In a directive on 19 February, the BSEC said that in order to diversify the portfolio risk, the securities market intermediaries shall invest at least 1% of their own portfolios in the listed Treasury bonds by June 2023.

To increase banks' participation in stock market investment, the Bangladesh Bank earlier on 2 February reduced the provision from 2% to 1% against loans given to intermediary brokerage firms, merchant banks, and stock dealers.

According to a letter from the central bank, the decision on the credit loss provision will take effect on 30 March.

According to merchant bankers, the relaxation of Treasury bond investment has created opportunities to invest in listed companies. There is now a liquidity crisis in the market, due to which institutional investors are not able to be active in the capital market.

Market insiders said institutional investors' market participation has fallen which was one of the main reasons why the turnover on Sunday plunged to Tk285.2 crore – lowest in 32 trading days.

As a result, according to sources, the initiative to take the Treasury bond market forward will be harder because general investors have little interest in investing in Treasury bonds. That means only institutional investors invest for the long term.

Due to the reduction in the investment limit, the capital market intermediaries will not invest in Treasury bonds, so the transaction volume of the Treasury bond market will not increase as expected. Despite the fact that the market regulator and those involved had expressed various hopes for the Treasury bond market to be activated, they added.

Sayedur Rahman, president of the Bangladesh Merchant Bankers Association, told The Business Standard, "It is not possible to invest in Treasury bonds due to the liquidity crisis in the market. Again, the Treasury bond or debt market has not been as vibrant as expected. As a result, lowering the cap on investment in Treasury bonds has been good for the capital market."

Defending his point, he said, "Reducing the investment limit in Treasury bonds will make it possible for the intermediaries to increase investment in the shares of listed companies. Due to lowering the conditions, market intermediaries will be able to increase investment in shares of listed companies."

In October 2022, the trading of 250 treasury bonds worth a market value of Tk1.75 lakh crore began in the secondary market.
Although Treasury bond trading has started, transactions are not going as expected due to various complications. On Monday, there was not a single Treasury bond transaction.

In 2021, the commission issued a directive requiring merchant bankers, portfolio managers, asset managers, stock brokers, and mutual funds to invest at least 3% of their portfolios in treasury bonds by 30 June 2022.

However, market intermediaries have not shown interest in investing in listed Treasury bonds due to the liquidity crisis and the debt market's lack of vibrancy.

Then the deadline was extended till December 2022.

Saying that there was a liquidity crisis, the merchant bankers again called for extending the deadline by one more year and reducing the investment limit.