Prospects and Challenges of Bond in Bangladesh Capital Market: A Comparison with Asian Capital Markets

Abstract

The bond market always plays a complementary role in allocating funds from surplus sectors to different deficit sectors. In Bangladesh, an efficient bond market can play a vital role in supplementing the banking system to meet the requirements of the corporate sector for long-term capital investment and asset creation while providing a steady source of finance in the event of equity market volatility. The study has explored the prospects and challenges of the bond market in Bangladesh using secondary data from abundant sources. The study has addressed that the amount of tradable government bonds is negligible, secondary trading of government bonds is infrequent, and there has been scarcely any public issue of corporate bonds. It is observed that the bond market remains mostly underdeveloped to finance the large infrastructural projects in Bangladesh. The study has also compared the bond market of Bangladesh with twelve Asian nations and revealed that Bangladeshi bond market appears to be very insignificant in terms of the size and the corporate bond to Gross Domestic Product (GDP) ratio relative to those of countries. There are a plethora of impediments to the expansion of the bond market in Bangladesh, which have been attributed to major structural issues such as low investor base, absence of benchmark yield curve, lack of investor awareness and high issuance cost. For the smooth operation of a deep and liquid bond market in Bangladesh, a comprehensive regulatory framework, bond investment-friendly administrative infrastructure, and augmented investor incentives are recommended. It is a message of optimism that the regulatory authority has already taken initiatives to introduce several bonds with various features to make the capital market more vibrant.