Bond Market in Bangladesh

The development of economy of any country depends mostly on the establishment of sound,
effective and efficient financial system in that country. A well-developed financial system
plays an important role in accelerating economic growth by mobilizing savings and
facilitating investment in an efficient manner. Bond is an instrument which plays a vital role
in economy. There are various types of bond products depending on provisions, maturities,
coupon rate, options, convertibility, etc. Bond Market in Bangladesh is dominated by treasury
debt securities. It has now only one corporate bond; but does not have any municipal
bond/debenture. The Taka Treasury bond market consists of primary issues of treasury bonds
of different maturities (2, 5, 10, 15 and 20 years), and secondary trade therein through
primary dealers. 20 banks performing as Primary Dealers participate directly in the primary
auctions. Other bank and non bank investors can participate in primary auctions and in
secondary trading through their nominated Primary Dealers. Non-resident individual and
institutional investors can also participate in primary and secondary market, but only in
treasury bonds. Bond market acts as buffer of equity market. This market in Bangladesh has
been found very inefficient with respect to number of issues, volume of trade, number of
participant, long-term yield curve, interest rate policy etc. The debt market being an integral
part of financial market plays a complementary role in developing economy through
allocation of funds to the different deficit sectors. The debt market consists of money market,
mortgage market, bond market and derivative market.
What is bond market?
The bond market is a financial market where participants buy and sell debt securities, usually
in the form of bonds. Bond Market is composed of Treasury bond, Municipal Bond and
Corporate Bond. This is of two kinds- Organized and OTC markets. There are various types
of bond products depending on provisions, maturities, coupon rate, options, convertibility,
etc. Bond Market in Bangladesh is dominated by treasury debt securities. The bond market
(also debt market or credit market) is a financial market where participants can issue new
debt, known as the primary market, or buy and sell debt securities, known as the secondary

What Bond market does? A bond in its simplest form is an IOU.of taka are being transacted in one offering. Companies raise capital in two ways. and so on. the buyer of those bonds becomes a creditor of the company. just about anyone could issue a bond. millions/ billions . . Banks are also issuers in the bond market in Bangladesh we have IBBL Mudaraba Perpetual Bond and Sub 25% Convertible Bonds of BRAC Bank. selling debt is not as easy as just taking it to the market. such as social programs and other necessary expenses. The final major issuer is the corporate bond market. Insurance Companies. Financial Institutions Participants of bond market: Bond market can be broken down into three parts: issuers. However. The Underwriter: The underwriting segment of the bond market is traditionally made up of investment banks and other financial institutions that help the issuer to sell the bonds in the market. As a result. but it may include notes. One is by issuing stock and the other is by selling bonds. In general.such as creating a prospectus and other legal documents . the need for underwriters is greatest for the corporate debt market because there are more risks associated with this type of debt. In general. This area of the market is mostly made up of governments. Households (Individual Investors). the overwhelming majority of bonds are issued by corporations and governments. An issuer of a bond promises to pay the buyer their principal back at a predetermined time and pays a specific amount of interest at predetermined dates. a lot of work needs to be done . Second thing is why issue bond ? and the answer is Just about everyone could use capital and the government and corporations are no exception. The biggest of these issuers is the government. In Bangladesh the government bond are issued by Bangladesh bank Called treasury bonds. This is usually in the form of order to sell the issue. Mutual Funds/401K. Thirdly who buys the bond? Answer is Pension Funds. Question is who issue bonds answer is technically. Issuer: The issuers sell bonds or other debt instruments in the bond market to fund the operations of their organizations. the buyers of the stock become owners of the company. underwriters and purchasers. When companies issue In most cases. When a company issues stock. bills. which issues debt to finance corporate operations But in Bangladesh we have a very little corporate bond market such as ACI zero coupon bond. Its primary goal is to provide long-term funding for public and private expenditures. which uses the bond market to fund a country's operations. banks and corporations. International Investors.

such as limits and interest rates. corporation etc. corporation etc. the bondholder has committed to receiving a fixed rate of return for a fixed period. Governments play one of the largest roles in the market because they borrow and lend money to other governments and banks.The Buyer: The final players in the market are those who buy the debt that is being issued in the market. but it can require an extremely high amount of capital in order to get started. but all businesses reach a point where they would rather set their own terms than work with lenders indefinitely.) to the saver or investor. The bond market serves both issuers and purchasers in unique ways. governments often purchase debt from other countries if they have excess reserves of that country's money as a result of trade between countries. all have a limit to their finances. from small public companies to the government with its budget. typically called investors. Large lenders provide the vast majority of these loans. the investor is issuing a small part of a loan. They basically include every group mentioned as well as any other type of investor. including the individual. and investors can either choose to purchase them or leave them be. Bonds are issued according to a business's own desires. Furthermore. making the lending business more manageable for the common person. By buying a bond. . When an investor buys a bond. get to participate in the loan business without having the capital required to fund large loans. Purchasers of bonds. Bonds as Investments Investors receive a great benefit from the stability of a bond investment. like government bodies or corporations. but investors cannot change these terms. If interest rets falls the bond will then be trading at a discount to reflect the lower return that an investor will make on the bond.the risk that bond prices will fall as interest rates rise. Bonds as borrowing instrument Businesses. Making loans on interest is a very stable and lucrative business. inflation. What kind of risk do investor face in bond market ? There are many risk associate with bond it depend on the interest ret.) like banks but the extra advantage it has is it offered directly by the borrower(Government . get immediate financing without having to take a loan from a traditional lender. provisions stated in bond indenture and the economic strength of the issuer to payoff to the investor Interest ret risk The most common risk in the bond market is interest rate risk . They will need loans to expand and reach into new areas. Issuers of bonds. The goal of bond market: The primary goal of bond market is to take the money from saver and give it to the borrower (Government .

Because a long term bond carries greater risk that higher inflation could reduce the value of payments as well as greater risk that higher overall interest rates could cause the bond's price to fall. Inflation Risk The risk that the rate of price increases in the economy deteriorates the returns associated with the bond. This is usually done when interest rates have fallen substantially since the issue date. They are much more likely to default on their bond payments. Government bonds don’t have this risk because governments can raise taxes or print money to pay debts. in which case bondholders will likely lose all or most of their investment. Bond Market Maturities: Bonds don’t live forever. . if an investor purchases a 5% fixed bond and then inflation rises to 10% a year. or maturity. Higher the maturity provides higher the interest rate. The risk that a bond will be called by its issuer. Call Risk This risk is only for callable bonds.Reinvestment Risk For the coupon bonds if interest re falls after purchasing the bond there is a reinvestment risk of the coupon payments. bonds that mature in less than five years are called short bonds. Some bonds have a very short life span. limiting investors' exposure to inflation risk. As a rule of thumb. For example. which allow the bond issuer to purchase the bond back from the bondholders and retire the issue. Those that mature in five to 12 years are called intermediate bonds. The interest rates of floating-rate bonds (floaters) are adjusted periodically to match inflation rates. This has the greatest effect on fixed bonds. The risk that the coupon payment from a bond will be reinvested at a lower rate than the bond originally provided. which have a set interest rate from inception. Callable bonds have call provisions. making default unlikely. small. emerging companies have this kind of risk very high. the bondholder will lose money on the investment because the purchasing power of the proceeds has been greatly diminished. Others last for decades. Default Risk The risk that the bond's issuer will be unable to pay the contractual interest or principal on the bond in a timely manner. However. at which time the bond issuer must return the principal to an investor. or at all. Each of them has an expiration date. Long bonds have maturities of 12 years or more.

CDs are among the safest investment a persona can make. The interest rate is determined ahead of time. Bond Market instruments:       US Treasury Bonds and Notes Agency Issues (Fed Gov) International Bonds Municipal Bonds Corporate Bonds Mortgage-Backed Securities Certificate of Deposit: A savings certificate entitling the bearer to receive interest. plus interest once the CD matures. usually on an overnight basis. The term of a CD generally ranges from one month to five years. Types of repo:        Due bill/hold in-custody repo Tri-party repo Whole loan repo Equity repo Sell/buy backs and buy/sell backs Securities lending Reverse repo Table: Issue of Corporate Debt Securities in Bangladesh .Depth and Breadth of the Bond Market: I am sorry to say that I can’t fine any answer of this question. The dealer sells the government securities to investors. A CD bears a maturity date. Here are the most common types of CDs:       Traditional CD Bump-Up CD Liquid CD Zero-coupon CD Callable CD Brokered CD Repurchase Agreement: A form of short-term borrowing for dealers in government securities. CDs are generally issued by commercial banks and are insured by the FDIC. a specified fixed interest rate and can be issued in any denomination. and buys them back the following day. and you’re guaranteed to get back what you put in.

DSE and CSE report. Securities Year of issue Features 1 × 17% Baximco Pharma Debenture 1988 20% Convertible 2 3 4 1989 1992 1993 5 6 × 17% Baximco limited Debenture × 17% Baximco Infusion Debenture × 17% Bangladesh Chemical Debenture × 17% Baximco Synthetic Debenture 17% Baximco Knitting Debenture 7 8 17% Baximco Fisheries Debenture × 15% Eastern Housing Debenture 1994 1994 9 10 14% Baximco Textile Debenture 14% BD Zipper Debenture 1995 1995 11 12 14% Baximco Denims Debenture 14% BD Luggage Debenture 1995 1996 13 14% Aramit Cement Debenture 1998 14 1999 15 16 15% BD Welding Electrodes Debenture IBBL Mudaraba Perpetual Bond ACI Zero Coupon Bond 17 Sub Bonds Of BRAC Bank Ltd 2011 1993 1994 2007 2010 Note: × marked debentures are not available at present.000 1. Source: SEC.Serial no. Constraints on Development of Bond market              Limited number of investor Capital gain High return in risk free government bond Alternative sources of debt financing Limited private management of pension fund Weak regulations and market infrastructure Underdeveloped tax system High interest rate Illiquid secondary market High transaction cost of bind issuance Cheap syndicated loans Default on interest payment Inexperienced investor Recommendation & conclusion: 20% Convertible 20% Convertible 10% Convertible 20% Convertible 20% Convertible 20% Convertible Size(BDT million) 40 60 45 20 375 240 120 800 250 40 300 150 110 20 Profit Sharing 20% Convertible 25% Convertible 3.000 .070 3.

Some recommendations are also addressed to regulators as well as to other market participants. and that money market funds operate differently in different markets. regulators should first assess the role MMFs play in their markets and determine the appropriate policy responses. as well as the crucial issue of valuation and the display of a constant NAV. the present recommendations also address vulnerabilities arising from the liability side. While this report offers up a series of recommendations designed to address the financial stability issues potentially raised by MMFs. The recommendations are generally addressed to the entity/entities responsible for the overall operation of the MMF and in particular its compliance with the legal/regulatory framework in the respective jurisdiction and thus for the implementation of the recommendations (the responsible entity). Compared to the reforms introduced which mainly focused on the asset side of funds.These recommendations recognize that market regulation varies by jurisdiction. . The recommendations offer a range of policy measures that regulators should use to mitigate these concerns.