Kathmandu, December 9:

Nepal Stock Exchange Ltd (Nepse) is set to start trading of development bonds worth Rs 4.95 billion by the end of this week. Despite government’s announcement — in the budget speech — of trading of development bonds through the secondary market, it took this long to start the trading.

The trading of additional development bonds worth four billion rupees is also in the pipeline, according to a source in the stock market.

Trading of government bonds at the Nepse floor may boost the investors’ confidence. However, it might be a Herculean task for the government to cope with a situation after it floats the bonds in the stock market due to high interest rate that is fixed at 6.5 per cent, which is higher compared to the interest rate on fixed deposits paid by the commercial banks.

Rewat Bahadur Karki, general manager of the Nepse, while talking to The Himalayan Times, said that issuance of fixed bonds would boost the market transactions.

He is more than affirmative on the infrastructure of Nepse for sound trading of development bonds.

Karki said that trading of development bonds from the secondary market is one the crucial tools of monetary policy to contain inflation.

However, Dr Dandapani Poudel, monetary economist and former economic advisor of the Nepal Rastra Bank (NRB) showed concerns over the trading of development bonds from the secondary market.

“It could be risky rather than beneficial in the existing market mechanism,” he said adding that immature market might lead to difficult circumstances in bond trading through the stock market. “Is the government ready to cope with the challenges that it brings with the trading of development bonds,” he asked.

“At a time when market speculators are suspecting the ‘unnatural’ increase in share prices at the stock market, the trading of development bonds might not be sustainable,” he stressed.

Bonds that are estimated at $45 trillion in the worldwide market, are still traditionally traded in the global market.

Poudel also gives an example of the Himalayan Bank that has issued and listed bonds worth Rs 350 million — which failed to get response — in the secondary market. It ultimately remained ‘elusive’.

“Fully automation and sound infrastructure with healthy market transactions can only help stimulate market instruments like development bonds to revive our capital market on a transitional phase,” experts opined.

Dr Poudel reminded that coupon bonds of the government and the private sector, despite listings at the secondary market, have disappeared in the trading due to higher interest rates. “Nepse has, however, given permission to five stockbrokers — out of a total 23 stockbrokers — for the trading of bonds at the secondary market,” Karki informed adding that two market makers namely Ace Finance and Share Markets Pvt Ltd have been authorised as the management of bond market - wholesale buying and selling. As per the rule, minimum transaction of development bonds stands at Rs 25,000, at one go.

Nepse also has got assurances from the Nepal Rastra Bank (NRB) for setting up a Bank of Kathmandu’s counter on its premises as the transactions at the floor has already crossed over Rs 50 million mark on a daily basis.