Download Developing a Deep and Liquid Bond Market

Developing a Deep and
Liquid Bond Market Experience of Sri Lanka
Presentation by
K.G.D.D.Dheerasinghe
Assistant to the Governor
Central Bank of Sri Lanka
Development of the Bond Market
Events of Significance
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1923 - Issue of loans commenced under the Colonial Treasury
Bill Ordinance by Crown Agents in U.K.
1937 - Issue of Rupee Loans commenced under RSSO No.7 of
1937
1941 - Issue of Treasury Bills commenced under LTBO
(Chapter 287)
1950 - Public debt management was vested with the Central
Bank under the Monetary Law Act.
1981 - A secondary market window was opened for Treasury
Bills by the Central Bank.
1986 - Weekly Treasury Bill auctions commenced
1992 - Primary Dealers were appointed.
Development of
the Bond Market contd...
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1993 - Repo window for Treasury Bills was introduced by
the CBSL.
1994 - Primary Dealer system was recognised.
1995 - Non-competitive bidding at primary auctions was
phased out.
1995 - Reverse Repo window was introduced by the CBSL.
RSSO, LTBO and MLA were amended to enable scripless
issue of Treasury Bills and Treasury Bonds.
1997 - Issue of Treasury Bonds commenced.
2000 - Dedicated Primary Dealers were appointed
2000 - Primary Dealer supervision commenced.
Development of
the Bond Market contd...
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2001 - US Dollar denominated Sri Lanka Development Bonds
were issued.
2002 - Fiscal Management Responsibility Act was enacted.
2003 - Issue of 10,15 & 20 year Treasury Bonds commenced.
2003 - Bloomberg Bond Trading System for Primary Dealers
was introduced.
2004 - RSSO,LTBO & MLA were amended to enable the
trading of scripless securities.
Scripless Securities Settlement System (SSSS) and Central
Depository System (CDS) commenced operations.
Legal Framework
(a) Appropriation Act
- Authority for annual borrowing limit
(b) Local Treasury Bills Ordinance
- Issuence of T-Bills
(c ) Registered Stock & Securities Ordinance
- Issuence of T-Bonds & Rupee Loans
(d) Foreign Loans Act
- Borrowing from foreign sources
(e) Monetary Law Act
- Debt management as a function of Central
Bank
(f) Fiscal Management Responsibility Act
- Guidelines and debt sustainability
Organizational Framework
 PARLIAMENT
- authority to borrow and accountable to the public
 MINISTER OF FINANACE
- delegates authority to Central Bank
 MINISTRY OF FINANCE / TREASURY-Principal
- authority & accountability
- Contracting non-commercial foreign borrowing
 CENTRAL BANK - Agent
- Iisuence and debt service
 PRIMARY DEALERS
- market making
 BANKS, PENSION/PROVIDENT/INSURANCE FUNDS
- Investors and Secondary Market Dealers
Implementation of the
Government Securities
Programme
 Preparation of the borrowing calendar
 Release of information to the market
 Regular meeting of the Debt Management
Committee ( weekly)
 Regular meeting with Primary Dealers (weekly)
 Issuance of domestic debt: e.g. Auction, Tap,
Placements
Organization of
Public Debt Department
 Front Office - market/public relations, primary issuance,
market information, investor awareness
 Middle Office - research inputs, risk analysis, issuance
techniques, product development,
database
 Back Office
- payment and settlement, servicing of
concessional foreign debt, CS-DRMS
 Support Services- human resources, training, IT support,
maintenance.
Budget Deficit and Borrowing
Requirement (as a % of GDP)
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1997
2000
2003
Total Revenue
Total Expenditure
Overall Deficit
Finanacing
18.5
26.4
- 7.9
7.9
16.6
26.7
- 9.9
9.9
15.7
23.7
- 8.0
8.0
Foreign
Domestic
Other/Privatization
1.9
3.4
2.5
0.4
9.4
0.1
2.9
4.5
0.6
Composition of Tradeble & Non Tradeble debt in domestic debt
1997
2000
2003
value (Rs. Mil) % value (Rs. Mil) % value (Rs. Mil) %
1. Tradable debt
1.1 Treasury Bonds
(medium - long term)
1.2 Treasury Bil s
(short term 91-364 days)
2. Non Tradable
Rupee Loans
Total
10,000
2.74
204,124
33.85
483,107
50.81
114,996
31.55
134,996
22.39
219,295
23.06
239,475
364,471
65.70
100.00
263,888 43.76
603,008 100.00
248,414 26.13
950,816 100.00
Source : PDD, Central Bank of Sri Lanka
Distribution of Bonds by Issuer
1 Government
2 Corporate
Total
1997-98
value (Rs. Mil)
10,000
2,668
12,668
2000
% value (Rs. Mil)
78.94 125,322
21.06 2,056
100.00 127,378
2002-03
% value (Rs. Mil)
98.39 214,797
1.61
2,979
100.00 217,776
Source : PDD, Central Bank of Sri Lanka & CSE.
Note. Corporate debt issues are for 1998, 2000 and 2002.
%
98.63
1.37
100.00
Government Domestic Debt Indicators
Govt. Debt/GDP
Domestic Debt/GDP
Total Debt Service/GDP
Domestic Debt Service/ Govt. Revenue
Domestic Debt Service/ Govt. Expenditure
Domestic Interest/GDP
Domestic Interest/ Govt. Current Expenditure
1997
2000
2003
85.8
43.6
9.4
38.6
23.4
5.5
27
96.9
53.8
14
67.9
31.6
4.9
24.5
105.9
57.9
19.6
108
46.9
6.4
39.9
Source : Central Bank of Sri Lanka
Domestic Financing of Fiscal Deficit
By Instrument
Long term Bonds
Short Term Bills
Non-tradable Securities
US$ denominated Bonds
Other Loans
By Source
Bank Borrowing
Non-Bank Borrowing
(Rs. billions)
1997
39.6
10
-4.7
33.5
-9.5
2000
118.5
90.6
6.1
1.8
15.8
2003
79.7
137.1
14.9
-39.3
-15.2
-18.3
39.6
-2.2
41.8
118.5
56.5
62
79.7
-20.9
100.7
Source : Central Bank of Sri Lanka
Ownership of Government Securities
Owner
1. Domestic Debt
1.1 Banking Sector
Central Bank
Commercial Banks
1.2 Non-Bank Sector
Savings Institutions
Sinking Funds
Insurance Funds
Provident and Pension Funds
Official Funds
Private Business and Individuals
1.3 Other
2. Foreign Debt
Total
1997
value (Rs. Mil)
%
2000
value (Rs. Mil)
%
2003
value (Rs. Mil)
%
19,770
80,766
2.59
10.57
97,778
101,252
8.02
8.31
44,587
183,824
2.39
9.86
63,028
100
9,292
144,406
15,438
48,638
6,302
376,331
764,071
8.25
0.01
1.22
18.90
2.02
6.37
0.82
49.25
100.00
87,263
100
18,969
218,615
24,640
120,116
7,927
542,040
1,218,700
7.16
0.01
1.56
17.94
2.02
9.86
0.65
44.48
100.00
138,939
100
24,828
333,289
40,739
246,209
7,453
843,882
1,863,850
7.45
0.01
1.33
17.88
2.19
13.21
0.40
45.28
100.00
Source : PDD, Central Bank of Sri Lanka
Secondary Market - Participants
- Ownership Structure
- Taxation Policy
- Yield Curve
Government Securities
Secondary Market Yield Curve
25/11/03
31/12/03
9.25%
9.00%
8.75%
8.50%
8.25%
8.00%
7.75%
7.50%
7.25%
7.00%
09/06/04
0
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3
4
5
6
7
8
9
10
11
12
13
14
15
Bond Market Infrastructure
 Online Electronic Bidding System
 Real Time Gross Settlement System
 Scripless Securities Settlement System
 Bloomberg Bond Trading System
 Colombo Stock Exchange - DEX System
Transaction Numbers and
Volumes of the SSS System
Period
February –2004
Number of
Volume
Transactions (Rs. Mil)
5,696
481,719.01
March
–2004
14,037
503,271.56
April
– 2004 11,500
523,349.47
May
– 2004 11,833
598,636.56
Total
43,066
2,106,976.60
Source:CDS,PDD, Central Bank of Sri Lanka
Growth of Depository Accounts of
CDS
Period
No:Of Accounts
February –2004
10,893
March
–2004
12,483
April
–2004
13,781
May
– 2004
13,846
Source: CDS,PDD,Central Bank of Sri Lanka
Regulatory Framework
 Licencing of Primary Dealers
 Primary Dealer Supervision
- On Site Examination
- Off Site Surveilance
 Regulations, Directions and Guidelines
The End
Thank You !