Banks not willing to sell treasury bonds due to price cap

Banks are reluctant to sell treasury bonds because of the ceiling the securities regulator has imposed on the price in stock market trading.

Though the trading of government securities began a week ago, general investors are unable to buy the bonds as banks and financial institutions hold almost all treasury bonds.

Bankers say the bond pricing should be left to the market – determined by supply and demand.

The imposed circuit breaker in bond transactions is not reasonable, they argue, saying banks are not willing to sell bonds without lucrative prices.

Shaifur Rahman Mazumdar, acting managing director of Dhaka Stock Exchange (DSE), told The Business Standard, "There is a 2% circuit breaker in treasury bond transactions. As a result, the unit price of the bond can increase or decrease by a maximum of 2% in a day compared to the reference price."

However, a top official of an asset management company, on condition of anonymity, told TBS, "Banks can make profits selling bonds within the imposed ceiling. Now awareness building in bond trading is necessary among buyers and traders."

Treasury bond trading has been introduced to boost the country's bond market.

The main purpose is to enable the public to invest in long-term fixed-income instruments such as bonds so that funds can be taken from them through bonds rather than depending on lenders.

But despite the demand, there is no supply due to the reluctance of financial institutions to sell bonds.

In this situation, the Bangladesh Securities and Exchange Commission (BSEC) summoned the treasury chiefs of all banks on 19 October to discuss the issue of treasury bond transactions.

According to the commission sources, apart from treasury bonds, problems in the issuance of perpetual and subordinated bonds and investment exposure in the capital market will also be discussed in that meeting.

BSEC spokesperson Mohammad Rezaul Karim told TBS, "We will try to sort out the issues regarding bonds through discussion."

According to market participators, there are technical complications in bond transactions in the secondary market of the stock exchanges.

If a bank wants to sell treasury bonds, it needs the prior approval of Bangladesh Bank for the transfer bond to the Beneficiary Owners (BO) account for trading. 

Due to the delay in the process, banks are currently unable to sell bond units like shares.

When asked why the bank is reluctant, a Treasury head of a bank, wishing not to be named, told TBS, "If the price is dictated in the case of trading treasury bonds, no one will want to sell the bonds. The problem is that the bank cannot offer to sell at the price it wants."

He said banks are interested to sell bonds with profits but the price cannot be quoted more or less than the imposed price ceiling.

On 10 October, experimental treasury bond trading started in the country's capital market.

Although there were three trades on the first day, there was no bond trade for three consecutive days. Although only one bond was traded on Monday.

The bonds, through which the government borrows for more than a one-year period, are called government bonds or treasury bonds.

In Bangladesh, there are 251 outstanding treasury bonds right now having their tenures ranging from two to 20 years.

The government is paying 2%-15% annual interest against the face value of Tk100 apiece of the bonds through two half-yearly coupons each year. The longer the tenure the higher the interest rates are.

The secondary market investors, however, are pricing the bond units in a way so that their yield ranges between 5.2% and 8.7% nowadays.

Bangladesh government owes over Tk3.17 lakh crore to the outstanding treasury bond holders mostly invested by the financial services industry.