Investors go improvising on secondary money market sans cues

Investors go improvising as the central bank put planned live display of secondary money-market yield curves that inter alia indicate economic dynamics, like expansion, recession or uncertainty.
Sources say the move is being delayed as the Bangladesh Bank is now taking time for fine-tuning the mechanism. Earlier, its planned launch was set for early this month of May.
A yield curve is a line that plots yields, or interest rates, on bonds that have differing maturity dates.
"We're now making fine-tuning the yield curves," said a senior official of the central bank, adding that the launch may now take place at the fag-end of this Month or early June.
Bangladesh Bank authorities will also meet its stakeholders this month before the start of 'go-live' operations.
It also needs some certification from its key stakeholders, for example, the Motijheel Branch of Bangladesh Bank, IT department and the department of payments systems of Bangladesh Bank and so on.
For over a year now, the BB has published yield curves on an experimental basis. And the banks overlook such experimental indicators for their portfolio valuations.
Here, secondary market means MI module-based market where banks participate in transaction of government securities. On the primary market, some select banks can participate.
To make the yield curve more efficient, the central bank will also change some functions of the MI module and rename it FMI (financial market infrastructure). Yield curves will be shown live based on the FMI or secondary market daily.
The regulator will also let the banks use the live yield curves, according to central bankers, in facilitating their bidding.
The live YTM (yield to maturity) is not being used by banks rather they follow "cut-off yields".
Bankers say the BB has been trying for long to make yield curve of its secondary market. Once implemented, it will be a "milestone" for the financial market.
They say through the live yield curve, banks will know the trend of the market and thus economic fundamentals of the day.
Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank (MTB), thinks this is very much important for the banking industry. "We welcome this move and we don't have any problem with one-month delay as it has been discussed for decades."
Mr Rahman adds: "Many times we take decision on assumption, that's not realistic, but such yield curves will give instant references."
He welcomes the innovation as the live yield of treasury bonds would give an authentic picture of the market.
There are broadly three types of yield curves - normal, inverted, and flat-indicative of different conditions of the economy.
A normal yield curve shows low yields for shorter-maturity bonds and then increases for bonds with a longer maturity, sloping upwards.
This curve indicates yields on longer-term bonds continue to rise commensurate with periods of economic expansion.
An inverted yield curve slopes downward, with short-term interest rates exceeding long-term rates.
Such a yield curve corresponds to periods of economic recession, where investors expect yields on longer-maturity bonds to trend lower in the future.
A flat yield curve reflects similar yields across all maturities, implying an uncertain economic situation.

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