Bangladesh lags behind most developing economies in terms of bond market size.

The bond market size of our neighboring countries like Malaysia, Indonesia and Pakistan stands at $345 billion, $233 billion and $66 billion respectively, while the bond market of Bangladesh (Treasury Bonds and corporate bonds combined) currently stands at just $18 billion.

According to the July 2021 Capital Markets Fact Book, the size of the global bond market currently stands at $124 trillion, while the size of the global stock market stands at $106 trillion.

Undeniably, Bangladesh falls short.

But the stock market regulator has moved forward to popularize and strengthen the bond market so that it can be a source of long-term financing.

Last May, the BSEC had adopted a registration order as a prerequisite for entrepreneurs issuing perpetual bonds, which are fixed income securities with no maturity date, for which these are not redeemable.

According to Tanzim Alamgir, managing director and CEO of UCB Investment, “the listing of perpetual bonds was necessary for the market to improve its liquidity”.

Despite these measures, which the new BSEC committee has been working on for a year, the bond market has not yet become popular with investors. Why is that?

We spoke to Tanzim Alamgir to get his perspective on these issues.

The Business Standard: We have millions in deposits at 60 banks across the country, so why is the bond market still struggling?

Tanzim Alamgir: There are two types of people in the market; one is market oriented and the other is not. No matter how much you raise the bond rate, the latter group will never be interested in investing in bonds. They prefer to invest in FDR (Fixed Deposit Receipt) in a bank.

And this is mainly due to our lack of understanding and experience with fixed income securities. Naturally, past stock market crashes still haunt the stock market.

But then another question arises: if the banks that have FDRs also have bonds (perpetual, tier II bond, zero-coupon bond), then the issue of trust should not be an issue here. But then why are investors still reluctant?

All bonds listed on the market are currently perpetual bonds. Apart from this, banks usually do not list other bonds they have due to the high cost of listing and the lengthy process.

DSE and CSE could choose to reduce costs and processing times so that banks and FIs (financial institutions) can list their subordinated bonds and ZCB (zero coupon bond) to popularize the bond market among individual investors.

Perpetual bonds are non-maturity, which means that they cannot be liquidated in any way, in theory. So while there are new perpetual bonds listed in the market, it has yet to generate interest among individual investors.

Currently, five perpetual bonds worth Tk 400 crore are listed on the exchange and around Tk 54,000 crore of bonds are waiting to be listed. However, trading in these bonds is still limited, implying a lack of market demand. This mismatch between supply and demand must be reduced to make the bond market dynamic.

TBS: We have publicly traded perpetual bonds. So why is it still not popular among investors?

TA: It’s about how we distribute the market. We are primarily interested in the equity market – where the more you risk, the more return you get. It’s a simple calculation. While one can expect a return of up to 30% or more by investing in the stock market, why buy bonds that offer a return of 10% on an annual or semi-annual (twice a year) basis? ?

Another measure taken by the BSEC is that now intermediary institutions such as investment bankers, portfolio managers, asset managers and securities dealers must invest at least 3% of their own portfolio in the securities of listed debt.

The BSEC encourages traders to invest in bonds and popularize the market through many guidelines that are essential for the development of the bond market. In addition, they can opt for training approaches for portfolio managers and organize workshops to enable them to better understand the debt market.

If you have Tk100 capital, you cannot invest the entire amount in the stock market, FDR or even bonds. Instead, put the money in different baskets, in small pieces, so that if a window is out of balance, you don’t have to worry.

But not just investment bankers, portfolio managers, asset managers and stockbrokers, but there should also be regulations that each individual investor will have to invest a certain percentage of what they have in his wallet. To popularize this, the SEC should offer incentives or even onboarding for investors.

Currently, DSE and CSE organize training and workshops for portfolio managers to raise their awareness of the debt market.

But at the end of the day, it’s a matter of trust and reliability that investors need to be sure of. Otherwise, no matter how many incentives you offer or what actions you take, it will be difficult to attract investors to the field. Regulators must therefore be stricter so that investors do not feel threatened and only then will the products of the stock exchange be more refined and safer.

TBS: Would you suggest we invest in bonds now?

TA: Yes, however, this should be done with proper knowledge and understanding of the bond market.

All bonds listed on the market are now perpetual bonds. Perpetual bonds remain a very lucrative investment opportunity as they offer a yield of around 10% compared to the Reconstruction and Development Fund (6-7%) and government certificates. However, since these bonds have no maturity date, I urge institutional investors to be the first to invest.

As for individual investors, they should step in after gaining sufficient understanding of the market.

Also, BSEC is working tirelessly to polish this area, we just need to give them a little more time and support their efforts.