Low yields, lack of awareness deterrents to bonds sales
KATHMANDU, Aug 21: Public responded coldly to bonds issued by the government for them last fiscal year, as yields offered by the fixed-income securities were not as attractive and many common people are still not aware of such tools.
The government floated Rs 1.41 billion worth of five-year Citizens Savings Bond and Rs 1 billion worth of five-year Foreign Employment Savings Bond targeting the public in the last fiscal year ended July 15.
Of these, Rs 126.5 million worth of Citizens Savings Bond, targeted for common public, and Rs 4.6 million worth of Foreign Employment Savings Bond, for Nepalis working abroad, were sold in the year.
“The public response was lukewarm because banks deposit rates were more attractive than the returns offered by these securities; another reason is the lack of general awareness about these tools that offer fixed income until their maturity to investors,” a high-ranking official of Nepal Rastra Bank (NRB) told Republica on condition of anonymity citing he is not authorized to talk to the press.
The government issues bonds every year to support deficit financing, which is the difference between the state´s income and expenditure for the year. The amount generated from sales of these tools is enrolled as domestic public debt in the state´s balance sheet, as it denotes credit issued by the public to the government for a certain period.
Last fiscal year, the government floated development and savings bonds worth Rs 21.41 billion for public as well as various institutions. Of these, Rs 14 billion worth of two- and three-year development bonds and Rs 5 billion worth of four-year National Savings Bond were sold out. Most of the buyers of these bonds were banks and financial institutions as they need to maintain statutory liquidity ratio of up to 15 percent by investing in these securities.
Contrary to this, Citizens Savings Bond and Foreign Employment Savings Bond did not find as many buyers, as many banks and financial institutions coupled with savings and credit cooperatives offered interest rates ranging from 12 percent to 15 percent on fixed deposits.
These returns were much higher than coupon rates of 10 percent offered by Foreign Employment Savings Bond and 9.5 percent offered by Citizens Savings Bond.
“But even if the returns on bonds were good, we suspect final results would not have been any better, as very few people in the country are aware of this investment avenue,” the NRB official said.
Bonds are generally securities issued by the government which offers a fixed interest rate for a fixed amount of time. Upon maturity, investors can collect principal amount, while interest yields are doled out periodically.
“Sales of bonds will only go up if this message reaches the grassroots level,” the NRB official said, calling government bonds more secure than money parked in banks as the state offers guarantee on these tools.