The central bank has approved a manual for the floating rate treasury bond (FRTB), paving the way for issuing such a debt instrument in the country.
The government had earlier decided to issue such a bond pursuant to rule-4 of the Public Debt Rules of 1946.
The floating rate treasury bond is a debt instrument that pays periodic coupons linked with a specified reference interest rate.
The coupon rate changes periodically as the reference rate does. The Bangladesh compounded rate (BCR) is known as reference rate.
Individuals and institutional investors, resident or non-resident, will be eligible to purchase and hold the bond.
Apart from this, the non-resident investors will be eligible to purchase the FRTBs with funds from a non-resident foreign currency account, or a Non-Resident Investor's Taka Account (NITA) with a bank in Bangladesh in the name of the purchaser.
The maturity of the bond will be more than one year. The government will fix it from time to time.
The coupon rate will be expressed as a summation of the BCR and the spread, which is determined through auction.
The coupon rate determined in auction will be fixed for the first quarter and reset on every coupon payment day for the next quarter, according to the BCR of that day.
If the coupon payment dates fall on a holiday, the BCR of consecutive business day will be applicable to re-fixing the coupon rate.
On the basis of the bids received in auction, the cut off rate will be determined by the auction committee.
But bids higher than the cut-off rate will not be accepted. The successful bidder will pay the price equivalent to the cut-off rate that it quotes.
The BB will publish the result on its website on the auction date. The secondary trading of the bond will be held freely in over the counter (OTC) market.
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