Two new bonds issued, auction system amended

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Siddique Islam
The government has issued two new treasury bonds of 15-year and 20-year terms to attract more investors and activate the country's secondary bond market, official sources said.
The Bangladesh Bank (BB) has amended the auction system of the government bonds, officially known as Bangladesh Government Treasury Bonds (BGTBs), from the beginning of the next fiscal aiming to create a competitive as well as a vibrant bond market.
Under the new provisions, the auction of all 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.
The central bank issued a circular in this connection Monday and asked the chief executives of all scheduled banks and non-banking financial institutions (NBFIs) to follow the new provisions for government bonds auction.
"We have issued a circular amending the government bonds auction system," a BB senior official told the FE Monday, adding that the new auction system for government bonds will begin its implementation process from July 03 next.
Interested individuals and financial institutions such as banks, NBFIs, insurance companies, corporate entities, authorities responsible for management of provident and pension funds will be eligible to purchase the government bonds.
"The BGTBs shall be issued at par through yield based multiple price auctions. The cut-off yield as decided by the auction committee shall be fixed as the annual coupon rate of the bond irrespective of the yields quoted by the bidders," the finance ministry said in a notification.
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.
Sources, however, said the coupon rates for bonds of each maturity will be payable at six monthly intervals from the dates of issuance.
The market players, however, welcomed the BB's latest move saying that the measures may bring dynamism in the secondary bond market through attracting long-term fixed income investors.
"The bond market will be activated if the government is able to attract long-term investment funds like provident fund and pension fund in the market," a senior official of a private commercial bank told the FE.
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.