The government is set to issue Three-Year Floating Rate Treasury Bonds (FRTBs) worth Tk 9.0 billion in the next three months to partly finance the budget deficit.
Under the arrangement, the FRTBs of Tk 3.0 billion each will be issued on the first Tuesday of each month.
The FRTB is a bond whose coupon is determined by adding spread with benchmark 91 days Bangladesh Compounded Rate (BCR).
The BCR is a daily rate based on the cut-off yield of 91-Day Treasury Bills (T-bills) auction. This is a reference rate which is primarily used to set the rate of floating rate instruments of the government.
"An FRTB is a security that has an interest payment which can change over time. If the interest rates rise, the security's interest payments will increase, which can help protect investors from inflationary pressure," a senior official of the Bangladesh Bank (BB) told the FE on Saturday.
He also said that it can help the government get finance at the lowest possible cost over time.
"FRTBs can add diversity to a government's existing securities, which can help expand the investor base and extend the average maturity of debt," the central banker explained.
He also said FRTBs can protect investors from market fluctuations by adjusting interest rates periodically based on a benchmark rate.
Both individuals and institutional investors will be eligible for purchasing and holding the FRTBs.
Non-resident investors will have 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.
They can transfer coupon payments (interest) and resale or transfer redemption proceeds abroad in a foreign currency.
The coupon of FRTB is payable on a quarterly basis. For every quarter, the coupon is varied as the benchmark rate is changeable.
"It's a good initiative of the government that will also help bring dynamism in the bond market," a senior treasury official at a leading private commercial bank told the FE.
He also said banks would prefer investing their excess funds in the FRTBs.
Earlier on March 27 in 2019, the government issued Tk 5.0 billion of Three-Year FRTBs for the first time and the cut-off rate was 6.60 per cent where spread was 3.42 per cent and BCR was 3.08 per cent.
Currently, five government bonds, with tenures of two, five, 10, 15 and 20 years respectively, are traded on the market.
On the other hand, four T-bills are transacted through auction to adjust government borrowings from the banking system. The T-bills have 14-day, 91-day, 182-day and 364-day maturity periods.
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