Only three trades of treasury bond on the first day

Following no trade on Monday's trial session, exchange trading of treasury bonds has successfully begun in the bourses of Dhaka and Chattogram with only three trades of two bonds on Tuesday.

Lanka Bangla Securities, the top stockbroker, has bought two lots of a five-year treasury bond named TB5Y0125 – one lot of 1,000 units from the Dhaka Stock Exchange (DSE) and the other from the Chattogram Stock Exchange (CSE).

City Brokerage, another top-tier firm, was the buyer in the other trade on the DSE. It bought ten lots of a 15-year treasury bond namely TB15Y0736 at a price 1.74% higher than the reference price that came from the Bangladesh Bank's trading platform.

In each trade, the respective parent lender firms Lanka Bangla Finance and The City Bank Ltd, were the sellers.

Explaining why only three trades took place in a day while the bourses got 250 treasury bonds listed, DSE Acting Managing Director M Shaifur Rahman Mazumdar said, "Treasury bonds are mostly held by banks, non-bank financial institutions and insurers as regulations compel them to park a portion of their assets in the treasury bonds through which the government borrows from the public."

Prior to the exchange trading, the investors were trading treasury bonds in the Bangladesh Bank platform through their beneficiary participant identification (BPID) accounts, and now they are also allowed to trade the treasury bonds in the government securities board in the DSE-CSE, he said.

DSE Acting Managing Director said for exchange trading of the treasury bonds, any investor needs a beneficiary owner identification (BOID) account.

The BPID holders need to instruct the central bank to share their account data, including their holding of treasury bonds, with the bourses to make their bonds sellable in stock exchanges.

A large number of BPID holders are yet to learn or accomplish the process, while many buy-and-hold investors of long term bonds are yet to decide for any trade, said Shaifur Mazumdar.

Treasury bonds trading should increase with the increase in user awareness, he believes.

Top tier institutional investors, high net worth individuals and the retail investors might gradually be interested in trading treasury bonds that often offer decent returns against virtually no default risk, added the Acting Managing Director of DSE.

What treasury bonds are and what they offer

The bonds through which the government borrows for more than one year are called government bonds or treasury bonds.

In Bangladesh, there are 251 outstanding treasury bonds right now having their tenures ranging from two to twenty years.

The government is paying 2%-15% annual interests against the face value of Tk100 apiece of the bonds through two half yearly coupons each year. The longer the tenure the higher the interest rates are.

The secondary market investors, however, are pricing the bond units in a way so that their yield ranges between 5.2% and 8.7% nowadays.

How much interest investors earn against their secondary market purchase price is called the yield.

A large number of treasury bonds are yielding more interest than what bank deposit returns nowadays.

This created a lucrative investment opportunity for the interest earners as the government bonds across the world are treated the safest investment tool amid the fact that the state, usually, is the last entity to default on debts.

Bangladesh government owes over Tk3.17 lakh crore to the outstanding treasury bond holders mostly invested by the financial services industry.

Exchange trading is believed to practically open the asset class to the masses as anyone having a BOID can invest a minimum sum of around Tk1 lakh for a lot of 1,000 treasury bond units with a face value of Tk100 each.

Treasury bonds tend to trade within a narrower range in the secondary market, compared to stocks.