Brokerage houses nudge investors into treasury bonds after initial apathy
Brokerage firms in Bangladesh are increasingly encouraging stock investors to invest in treasury bonds as the risk-free securities are offering lucrative returns, which are higher than the deposit rate in the banking sector.
The interest rate of treasury bills and bonds is even higher, in some cases, than national savings certificates (NSCs), which give the highest returns among all investment tools in the country and are immensely popular among savers.
What is more, unlike NSCs, there is no upper investment limit for bills and bonds, drawing big investors.
Through the central bank, the government issues treasury bills and bonds to borrow from the market.
Treasury bonds made their debut on the Dhaka Stock Exchange (DSE) in October 2022, offering a new product to investors in a market shorn of adequate investment options.
Initially, brokerage houses were, however, reluctant to promote the securities since the commission was lower and a lot of manual tasks are involved.
Now, their attitude is changing owing to the regulators' push and the higher rate of return for investors that may prompt the latter to come up with more funds, which may give a much-needed boost to the incomes of the brokers ultimately.
Recently, a number of brokerage firms published advertisements, sent letters and emails to their beneficiary owner's accounts holders, informing them about the instruments.
The DSE also directs brokerage firms twice a month in line with the direction of the Bangladesh Securities and Exchange Commission (BSEC) so that brokers raise awareness about the benefits of investing in bonds.
Abdul Mannan, a stock investor, says he has not seen any such ads from his stock brokerage firm to invest in any instrument.
"This was the first time my stock broker is encouraging me to invest in treasury bonds."
Mannan is convinced that treasury bonds are a lucrative risk-free investment tool, so he has decided to put in Tk 10 lakh in the treasury bonds by liquidating fixed deposits with a private bank.
This is because the bank offers a deposit rate of 8 percent, added the investor, who has been investing in the market since 2005.
On the other hand, the interest rate of treasury bonds ranges from 11.60 percent to 12.10 percent, whereas the deposit rate at most of the strong banks is 7 percent to 9 percent.
"Government securities are a new product for stock investors and it is a tool that can be attractive," said Md Moniruzzaman, managing director of Prime Bank Securities.
"This is risk-free, so we are encouraging investors to invest in treasury bonds. This is something that can be present to any investors who have large investments or are holding a large volume of funds."
The top official is aware of the tiny commission involved with the processing of treasury bond trading. "However, it can boost turnover of the market by bringing in investors who do not want to assume any risks."
At present, the commission on selling treasury bonds is 0.1 percent, or Tk 20,000, or whichever is lower. But the highest fee in stock trading is 1 percent and the average charge is 0.28 percent.
Md Ashequr Rahman, managing director of Midway Securities, also said the commission in trading treasury bonds is too small from brokers' points of view.
"A lot of manual tasks are involved in buying and selling of treasury bonds. However, we are encouraging them so that people can diversify their portfolio."
The return on NSCs is up to 11.76 percent but it will be lower if the investment is more than Tk 30 lakh. The upper limit of investments in any savings certificates is Tk 50 lakh.
Rahman says they usually suggest investors buy bonds during auctions rather than from the secondary market as the rate is better.
"Investing in bonds is a good option for investors, so some investors are really excited about it and some of them are buying. We are happy to see investors are getting a good rate."
According to Rahman, if inter-operability can be simplified and automated, this instrument will be a desired tool of investments for many.
Ershad Hossain, managing director and CEO of City Bank Capital, says the demand for bonds is high among investors as the rate is high.
"So, we are encouraging investors to park funds in them," he said. He also cited the lower trading commission as a barrier.
In order to purchase treasury bonds during primary auctions, BO account holders need to place the buy order two working days before the auction, which takes place on every Tuesday.
Investors can procure treasury bonds worth at least Tk 1 lakh. They can buy the tool from banks as well.
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