No `Sweeteners' Make Bonds Untradeable

Though the number and amount of listed bonds are increasing in the secondary market, they have not witnessed any trading due to lack of incentives from the government. "The government needs to give some incentives," said Dr Manohar Krishna Shrestha.

Without any attractive features, the bonds are losing their lustre. "The govenrment should provide tax exemption on the interest like it used to on the 16-year development bonds back in 1995," he said adding that high interest and tax exemption on the interest could re-ignite the interest of investors.

"The investors could also be given a convertible option," Shrestha added.

There are a total of 13 listed government bonds worth Rs 151,500,000,000 that are 1,51,500,000-units -- apart from corporate bonds -- in the secondary market.

The first-ever government bond was issued by the British government in 1693 to raise money to fund a war against France. It was in the form of a tontine. In finance -- a bond is a debt -- where the authorised issuer like the government or a corporate house owes the holders a debt, and depending on the terms of the bond, is obliged to pay interest and repay the principal at a later date, termed maturity. Bonds can be issued by pub lic authorities, credit institu tions and companies in the primary market. Corporate houses issue bonds to raise money in order to expand business. The term is usually applied to longer-term debt instruments, generally with a maturity date falling at least a year after the issue date.

Nepal Electricity Authority (1,500,000-units), Himalayan Bank (500,000-units), Kumari Bank (400,000-units), Nepal Investment Bank Ltd (250,000units), Nabil Bank (300,000units), Laxmi Bank (350,000units) and Siddhartha Bank (400,000-units) have listed their bonds at Nepal Stock Exchange (Nepse).

But the investors are less interested in the bonds though these are similar to stocks. "Bonds and stocks are both securities but the major difference between the two is that stockholders have an equity stake in the company whereas bondholders have a creditor stake in the company," he said adding that another difference is that bonds usually have a defined term or maturity, after which the bond is redeemed while stocks may be outstanding indefinitely.

"The other cause for non-attraction of bonds is lack of instant liquidity," Shrestha said. "Though they can be used as collateral like shares there are more hassles than incentives."

He also blamed the lack of institutional investors in the domestic market as another cause for investors not being attracted to bonds though these are safer investment instruments than shares.

"In other countries, bonds are bought and traded mostly by institutional investors like pension funds and mutual funds," he added.