General investors allowed to buy Treasury bonds

Infographic: TBS

General investors of the capital market are getting the opportunity to buy Treasury bonds in the primary auction of the central bank through their beneficiary owner (BO) accounts.

The Bangladesh Securities and Exchange Commission (BSEC) took the decision at a meeting on Sunday to increase the supply of Treasury bonds in the secondary market of the stock exchange.

Commission sources said discussions have been held with the central bank regarding a quota in primary auction for general investors. Bangladesh Bank may soon issue a circular in this regard.

With this, capital market investors can buy Treasury bonds of a minimum Tk1 lakh in the auction.

According to the BSEC, a system has been discussed and mutually agreed upon with the concerned parties to move the process and instructions are being prepared.

BSEC Chairman Shibli Rubaiyat-ul-Islam told The Business Standard, "Treasury bond trading in the capital market started after a long time to increase transactions."

"However, while there are buyers, there are no sellers. As a result, the purpose for which the bond transaction was started, is not succeeding," he added.

"It is not possible to increase market transactions depending only on equities. If ordinary investors buy bonds through BO accounts and sell them in the secondary market, transactions will increase," he said.

This will also identify the demand for Treasury bonds in the market, he added.

BSEC sources said that if the general investors want to buy Treasury bonds, they will have to send letters regarding this through the respective brokerage firm.

Then the brokerage firm will buy the Treasury bill through primary dealers or banks. The bonds can be sold in the secondary market.

Bond market in Bangladesh

Treasury bond trading was introduced in October last year to boost the country's bond market.

According to Dhaka bourse sources, there were only 18 trades in Treasury bonds till April. The price of which was Tk5 crore.

Currently, 24 banks are acting as primary dealers in Treasury bonds. Bangladesh Bank is selling bonds with tenures ranging from two to 20 years with interest rates ranging from 8.03%-8.83%.

In Bangladesh, there are 251 outstanding Treasury bonds right now having their tenures ranging from two to 20 years.

Banks' reluctance

Currently, banks and financial institutions hold almost all Treasury bonds.

However, banks are reluctant to sell Treasury bonds because of the ceiling the securities regulator has imposed on their price in stock market trading.

Bankers say the bond pricing should be left to the market – determined by supply and demand.

A Treasury head of a bank, wishing not to be named, told TBS, "If the price is dictated in the case of trading Treasury bonds, no one will want to sell the bonds. The problem is that the bank cannot offer to sell at the price it wants."

He said banks are interested to sell bonds with profits but the price cannot be quoted more or less than the imposed price ceiling.

At present, there is a 2% circuit breaker in Treasury bond transactions. As a result, the unit price of the bond can increase or decrease by a maximum of 2% in a day compared to the reference price.

Furthermore, if a bank wants to sell Treasury bonds, it needs the prior approval of Bangladesh Bank for the transfer bond to the BO account for trading.

Due to the delay in the process, banks are currently unable to sell bond units like shares.