Bond Market

Bond markets in most countries are built on the same basic

elements:
a number of issuers with long-term financing needs
investors with a need to place savings or other liquid funds in
interest-bearing securities
intermediaries that bring together investors and issuers
Infrastructure that provides a conducive environment for securities
transactions, ensures legal title to securities and settlement of
transactions, and provides price discovery information.
Regulatory regime provides the basic framework for bond markets
and, indeed, for capital markets in general.
Efficient bond markets are characterized by a competitive market
structure, low transaction costs, a robust and safe market
infrastructure.

Government Bonds & their
Importance
An important element of a domestic bond market is the
government bond market.
At the macroeconomic policy level, a government securities
market provides an avenue for domestic funding of budget
deficits and avoid a build-up of foreign currency-
denominated debt.
A government securities market can also strengthen the
transmission and implementation of monetary policy,
including the achievement of monetary targets or inflation
objectives, and can enable the use of market-based
indirect monetary policy instruments.
The existence of such a market enable authorities to
smooth consumption and investment expenditures.

Bangladeshi Bond Market:
Bangladesh's bond market represents the 'smallest' in South Asia,
accounting for only 12 per cent of the country's gross domestic
product (GDP).
In the region, Sri Lanka appears to have the largest bond market
based on the value of outstanding bonds as percentage of GDP.
India's bonds amounted to 35 per cent of GDP while Nepal's
domestic bonds were 15 percent. Sri Lankan bond market accounts
for almost 51 per cent of its GDP, comprising entirely of government
bonds.
There are very few corporate bond in the region, banks still
constitute the main source of funds for the corporate sector.
In Bangladesh, the bond market has only eight corporate bonds. All
were issued through private placement partly because of the
public's little confidence in corporate debt stemming from the
large-scale default of publicly offered corporate bonds.

Bangladeshs New Bond Offer:

Banglalink plans to raise $102m through the biggest
corporate bond deal.
The deal, while small in global terms, is an indication that
investors are becoming more confident in Bangladesh, a
country identified by Goldman Sachs as one of the N-11
(Next Eleven) markets to watch in the 21st century.
Citi Bangladesh, arranged the deal. The Orascom bond
shows that its possible to raise sizable amounts of
financing from the local market. The senior secured bonds
are denominated in the Bangladeshi taka. They have a 13.5
per cent coupon rate payable every six months and are due
in 2014.

Impediment of the Bangladesh Bond
Market:

1)Issuers:
Bangladesh lacks a significant number of potential, good-quality
issuers. Most private sector enterprises are small and owner-run,
many are of cottage size and most are in the garment industry,
which to date depends largely on short-term bank loans for
financing.

These enterprises could benefit from longer-term funding but are
neither large enough nor well known enough to issue bonds.

Most of the large-scale industrial units and commercial enterprises
are state owned. Their shares are not listed, and they do not offer
debentures since their financing needs are met by the government
or by the state-owned Banks.

Barriers continued:
2) Investors:
About 80% of the base is made up of retail investors,
whose primary concerns include the equity at the stock
exchange or the government savings certificate.
Of the few institutional investors that could support a
bond market, most are either prevented from investing
in corporate bonds by restrictive guidelines or are not
professionally managed.
The major institutional investors are the Investment
Corporation of Bangladeshand the insurance
companies.

Barriers Continued:
3) Intermediaries:
Intermediaries in Bangladesh lack many of the skills
needed to foster an active local corporate bond
market. Commercial banks dominate the financial
sector and not enough intermediaries are skilled in
securities.
Too few private merchant banks are able to conduct
financial advisory and trust services. Nor do any feel
motivated to become a market maker for an issue.
Even if they are able to participate, intermediaries are
reluctant to take any risk in dealing