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BB selects 30 bonds for benchmarking

JASIM UDDIN HAROON | November 11, 2020 00:00:00

The Bangladesh Bank (BB) has selected 30 treasury bonds for benchmarking as part of its latest move to develop a secondary market for the government securities.

It took the ones, which are frequently traded or auctioned in large volume, out of the total 269 active treasury bonds, according to an announcement made by the central bank on Tuesday.

Of all bonds, 30 do have the most representation.

"This [benchmarking] is very much important to make the government securities market a vibrant one," said an official at the department of debt management (DDM) of the BB.

The government securities are, in real terms, not market-based ones and the benchmarking will be one-step forward towards developing an effective secondary market for the treasury bonds, officials familiar with the development told the FE on the day.

Setting up of such benchmark is expected to help the primary dealer (PD) banks to quote in two ways (buy-sell) to the parties concerned.

Although the sale and buy of such bonds by the PDs in the money market is a common phenomenon, it has widened further in the 'quantitative easing' mechanism of the central bank.

The latest move would also help determine the yield curve of the fixed-income instruments, and such yield curve again would help fix the coupon rate of the corporate bonds, sources said.

An official at the DDM said the BB considered the volume of trade and other relevant issues while selecting the bonds for benchmarking. This benchmark may be reviewed after a certain period of time depending on the volume of trades.

"If there is poor trade of a particular bond from the benchmark box, it will be replaced by the ones which will be traded more frequently," he said.

The treasury heads of a number of banks said the spreads between the buying and the selling rates of the selected bonds are too high and stressed the need for rationalising it.

"Actually the gap is too high. It should be rationalised," said Md Shaheen Iqbal, head of treasury at BRAC Bank, appreciating the BB move. "The BB needs to sit with all the participating banks in developing the market," he suggested.

Ashim Kumar Saha, senior executive vice president and head of treasury at Mercantile Bank, pointed out that almost all the economies have benchmark bonds, but Bangladesh has been lacking it for a long time.

Usually, the bonds having higher yields are treated as the benchmark ones, he said.

However, the total outstanding of treasury bills and bonds in Bangladesh is now around Tk 3.0 trillion.

BB officials said trade of such T-bills and bonds is now increasing fast as it has already crossed Tk 450 billion in the first four months of the current fiscal year.

"We are expecting that the trading of the government securities may surge to Tk 1.5 trillion at the end of this fiscal year," said another official at the DDM.

In the last fiscal year, the trading volume stood at Tk 580 billion, more than 200 per cent higher than that of the previous fiscal year.

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