Will treasury bonds woo investors this time?

It is a much-talked-about topic that capital market investment is unpredictable and risky. But against this unpredictability, government securities (G-Sec), mostly known as treasury bonds, are considered a safer option for investors through which they can book guaranteed profits.

But the investors in Bangladesh have so far availed of a little scope to book gains through bonds due to the lack of a vibrant secondary market platform in the country.  

The Dhaka Stock Exchange (DSE) formally launched treasury bond-bill’s secondary trading back in 2005, but not a single trade took place after the first day due to the then inefficient trading cost structure and inconvenient trade settlement system between the money market and the capital market. 

After this long time, the trading of government securities would again start tomorrow on a trial basis. 

Treasury bonds are the biggest debt instruments through which the government borrows from the market for various tenures. Once the trading of treasury bonds resumes, the general investors would be allowed to buy or sell these instruments like the company stocks on the secondary market. Like company stocks, the bond trading would also be completed through the investors’ beneficiary owner’s (BO) accounts. 

So far, the government has borrowed over Tk 3.15 lakh crore through the issuance of 252 treasury bonds. 

After the resumption of trading of the government securities, general investors would be conducting their buy and sale procedures through brokerage firms which they are now doing for share trading. But a significant difference here is that the listed companies, in general, declare dividends once a year while the bond profits would be given in every six months or twice a year. 

An investor would have to spend a minimum of Tk 1 lakh to buy a bond unit because the face value per unit is Tk 1 lakh. They would also be allowed to invest more in bonds. 

Commenting on the resumption of treasury bonds on the secondary market, capital market analyst Professor Dr Abu Ahmed told The Business Post, “The government would have taken this initiative much before because a large number of bonds are set to expire. However, it is better late than never.”

Currently, banks, insurers, and non-bank financial institutions are eligible to invest in government treasury instruments. 

“The investors, who were previously interested in putting their funds in saving instruments or fixed deposit receipts (FDRs) can now opt for the bonds too. In the long-term, it would expand the investment scopes in the capital market,” commented Professor Ahmed. 

He, however, thinks it would take time to become a popular investment instrument among general investors. 

Kazi Ahsan Maruf, managing director at Ekush Wealth Management Limited, said, “It is a very time-bound decision to bring the bond trading back on the secondary market because the mutual fund managers would also have a chance to book a guaranteed profit by investing in treasury bonds.”

He also opined the minimum investment limit needs to be brought down to ensure increased participation as a large part of the general public does not have the affordability to participate in bond trading.

In this regard, Mohammad Rezaul Karim, an executive director and the spokesperson for the Bangladesh Securities and Exchange Commission (BSEC), told The Business Post, “We are going to resume the bond trading on the secondary market after a long time. We have plans to simplify all the required processes to ensure greater participation of investors in the bond trading.” 

Brokerage commission 

According to the BSEC guideline, in case of the treasury bond trading, the brokerage fee must not exceed 0.1 per cent of the bond value, while the clearing and settlement fee must be within 0.01 per cent against Tk 1,000 each and the settlement fee would take effect on July 1, 2023. The BSEC may review the maximum brokerage charge from time to time.

Bond circuit breaker 

The prices of treasury bonds would be allowed to go up or down (circuit breaker) by at best 2 per cent in a trading session, while the tick size would be Tk 0.0001 which is Tk 0.1 for stocks.

Tick size refers to the gap among securities’ price slabs.

Statistics and coupon rate

Currently, 252 treasury bonds are listed with the capital market with tenures from two to 20 years.  

Among them, nine bonds have been issued for a two-year tenure, while 19 for five years, 36 for 10 years, 92 for 15 years, and the remaining 96 have been issued for a 20-year tenure. 

Currently, the coupon rate for a one-year bond ranges from 5.1 per cent to 9.5 per cent, while the rate ranges from 7 per cent to 9 per cent for a 10-year bond.

The rate varies from 10 per cent to 13 per cent for a 15-year bond, while the rate varies from 9 per cent to 14 per cent for a 20-year bond.  

Regulatory guidelines

Earlier on September 29 this year, the BSEC published a guideline on the trading system of government treasury bonds (T-bond) or government securities (G-Sec) on the secondary market at the stock exchanges.

The Dhaka and Chittagong stock exchanges would ensure trading platforms for the trading of government securities on the stock exchange by any individual and institutional investor, including non-resident Bangladeshis (NRBs) and foreign investors, as per the order.

The stock exchanges would also ensure the continuous listing of government securities and the de-listing, and such processes would be treated as those done under the provisions of the Securities and Exchange Ordinance 1969, the BSEC guideline read. 

In 2019, the BSEC, the DSE, and the Bangladesh Bank entered into a tripartite agreement where the DSE agreed to waive all listing fees for government bonds and have a rational tax structure from the government. The DSE also agreed to charge a feasible amount for trading and settlement of government bonds.