Old treasury bonds likely to be ploughed back in circulation

The government is likely to reissue the old treasury bonds for the buyers, stopping the issuance of new ones, officials said.
The officials concerned felt that the old treasury bonds would have certain psychological impact on the buyers because of their higher yield curves.
Sources at the finance division told the FE that preparatory work was at the final stage for putting the bond on sale.
Currently, country's treasury-bill and-bond market does not go by market forces (demand and supply). Primary dealer (PD) banks, the major buyers, participate in the market each Tuesday as per auction calendar.
The PDs purchase bills and bonds either for business purposes as a result of excess idle money or as a condition of maintaining statutory liquidity ratio as per the banking rules.
There is provision that individuals could also purchase bonds with denomination of Tk 10 million. But they hardly buy through the banks as the returns are lower than that on the other prevailing products on the money market.
Each auction has a target of realising a fixed amount for funding budget deficit. And if the bonds earmarked for a particular auction remain unsold, the central bank on its own purchases the remainder. Such intervention backfires-it increases inflationary pressures on the economy.
However, finance division officials said the old long-term bonds that have impressive yield records in the past in terms of its attaining interests would attract buyers.
These bonds usually mature in 15 and in 20 years.
But, many officials familiar with such type of trading told the FE that this government move would hardly help develop the bond market.
They argued that there existed varying rates for different types of bonds in the country, leading to higher sales of lower- denomination prize bonds, and family and other saving certificates.
The government offers 5-6 percent rate of yield on the treasury bills that mature in a year while it pays 11-12 per cent of the same for the long-term bonds matured in 15 and in 20 years.
However, the finance division officials hold the hope that the re-issuance of old bonds would attract the potential buyers as its serial number will be shorter.
They noted that long-term bonds like the 15-year and the 20-year ones are less popular among the institutional buyers and the individuals for their long maturity periods although they receive yields every six months.
The profit accrued from the bonds is simple in nature--obtained every six months.
"The old long-term bonds have very good yield curve, maintaining upturns. So, seeing their potentials, buyers will get attracted to it," said an official working with the Cash and Debt Management Committee of the finance division.
However, the finance division in its latest meeting discussed the issue in detail and formed a 5-member committee to prepare a report on it.
The committee, which had October 15 deadline for submitting the report, prepared the draft report but the officials concerned advised further improvement upon it.
Sources at the CDMC said its next meeting would approve the issuance and the bond be sold from the next auction calendar.
Gani, who is now on leave-preparatory-to-retirement, told the FE that this move is good as it is being practised in many countries, including India, Pakistan and Sri Lanka.
But as regards bond-market development, Mr Gani said this would actually not help develop bond market as the rate of interest is poor in comparison with the other saving instruments available on the market.
"If we adjust the returns with the inflation, the real earnings from the bonds will be much low," commented the banker, who had worked with the government treasury on behalf of the Bangladesh Bank for long.

jasimharoon@yahoo.com