Why Does Bangladesh Have No Functioning Bond Market
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Rashed Al Ahmad Tarique ZR-61, BBA 16 th Batch IBA, DU. Assignment: Why does Bangladesh have no functioning bond market? Bonds are defined as fixed income local currency security instrumen ts. The purchaser lends money to the issuer in exchange for regular periodic payments and return of the principal amount at a maturity date. The main categories of bonds are corporate bonds, municipal bonds, and government treasury bonds, notes and bills, which are collectively referred to as simply "Treasuries". Two features of a bond - credit quality and duration - are the principal determinants of a bond's interest rate. Bond maturities range from a 90-day treasury bill to a 30-year government bond. Corporate and municipals are typically in the three to 10-year range. The development of a bond market is a crucial growth engine for an economy. Yet Bangladesh remains behind its neighbors, even Nepal, in the percentage of GDP held in bonds. As funds from external assistance are drying up, the country would need long term financing to setup the infrastru cture that would let its economy takeoff and elevate a vast majority of the population up from below the poverty line. In the corporate sector, bonds allow firms access to funds from small savers. Ideally, a country’s investment should be equal to its savings. Any gap that exists is a sign that there exists some inefficiency in the market structure. Some of the major reasons behind the bond market not taking off in Bangladesh are outlined below: 1. Government bonds in the form of Savin gs Certific ates, Priz e Bonds, T-Bills hold a high rate of return on investment. This discourages people to invest in corporate bonds which are considered to be more risk-averse. Furthermore, governments bonds are not traded on the stock exchange.
Why Does Bangladesh Have No Functioning Bond Market
