Dhaka, Bangladesh (BBN)- The development of securities markets requires aligning interest rates on national savings certificates with that of government approved securities to avoid fragmentation of instruments.

Regulators, market participants and members of the World Bank (WB) have identified the issue of bringing dynamism to both the country’s primary and secondary securities markets.

According to a WB information note released in Dhaka Tuesday, “securities market development needs to avoid fragmentation of instruments by aligning the national savings schemes rates along with treasury bills ((T-bills) and treasury bonds (T-bonds).”

Increased differences of interest rates between national savings instruments and government approved securities are the main obstacle to development of the country’s securities markets, treasury officials said.

“The interest rates on national savings certificates are now higher ranging 3 percent to 4 percent compared to the government securities,” a senior treasury official of a private commercial bank said.

The note said it has been agreed that automation of the auction and registry systems will improve efficiency of the primary market. “It is also important to review and improve the current primary dealers systems,” it added.

The WB team, along with Bangladeshi authorities, has revisited the status of the government securities market in the country and identified critical areas for its further development.

The team noted that transparency in the primary market of government securities has improved in recent years with introduction of an auction calendar and publication of auction results.

However, the auction system has remained manual. Besides, the demand for government securities heavily relies on captive source. “Therefore, there is a scope for the market development of both primary and secondary markets of government securities,” the note added.

An efficient and liquid domestic debt market is important for public debt management, bank liquidity management and monetary policy implementation.

Currently, three types of T-bills are being transacted through auctions to adjust to the government borrowing from the banking system.

The T-bills have 91-day, 182-day and 364-day maturity periods.

On the other hand, four government bonds-5-year, 10-year, 15-year and 20-year -are being traded in the market.

BBN/SS/SI/AD-13January10-10:35 am (BST)