Govt to issue 2 new bonds, amend auction system

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Siddique Islam
The government is going to issue two more bonds of 15-year and 20-year terms to boost the secondary bond market by creating new market players, official sources said.
The Ministry of Finance will soon issue a directive with procedural details including denomination of the bonds that will be traded from the beginning of next fiscal year.
Besides, the Bangladesh Bank (BB) has decided to amend the auction system of the government bonds from the first day of the next fiscal aiming to activate the country's secondary bond market.
Under the proposed system, the auction of government bonds will be held as per yield based multiple prices system, popularly known as at par system, instead of the existing discount method to bring dynamism in the bond market.
A seven-member high-powered committee, headed by the most senior deputy governor of the central bank, will oversee the overall auction system that will be run on the basis of market behaviour and government's credit requirement.
"We will issue a circular in a day or two in this connection," a BB senior official told the FE Sunday, adding that the central bank has finalised the amendment of the auction system in line with the stakeholders' opinions.
The central bank earlier sought opinions of the stakeholders including banks, non-banking financial institutions (NBFIs) and insurance companies to amend the auction system of the government bonds.
"The latest move will be able to bring dynamism in the secondary bond market through creating competition among the banks and the NBFIs," the BB official observed.
He also said the government will be able to meet its budget deficit through borrowing from the bond market instead of other sources including overseas borrowing.
On the other hand, the market operators see the move as a positive indication saying that the amendment may be able to attract long-term fixed income investors like provident fund and life insurance companies.
"We are expecting the demand of the government bonds to increase in the secondary market after the amendment," a senior fund manger of a private commercial bank told the FE.
He also said the government should take necessary measures to attract the provident, pension and gratuity funds in the secondary bond market.
In 2003, the government introduced two bonds for five-year and ten-year terms to boost the secondary bond market and promote savings by attracting the fixed income groups to invest in these instruments.
Interested financial institutions and individual investors can take part in the transactions of these bonds through banks and NBFIs.