There’s over-re­liance on rat­ing agen­cies

Mint Asia ST - - Otherviews -


has one of the larger and more liq­uid bond mar­kets in Asia. But com­pared to the size of out­stand­ing bonds, trad­ing is lim­ited. Liq­uid­ity is con­cen­trated in a few bench­mark G-secs. Port­fo­lios hold cash caus­ing a drag on yields.

Illiq­uid­ity means traded prices are not read­ily ob­serv­able. Dif­fer­ent par­tic­i­pants (banks, mu­tual funds, prov­i­dent funds, etc.) use dif­fer­ent val­u­a­tion mod­els. In­cor­rect mark­ing to mar­ket it­self can be de­ter­rent to trad­ing. An­other rea­son for illiq­uid­ity is the pre­pon­der­ance of pri­vate place­ments with a buy and hold ap­proach, as is the lack of mar­ket mak­ers who pro­vide liq­uid­ity in global mar­kets. Mar­ket mak­ers also usu­ally pro­vide bond buy­ers with re­search. Their ab­sence means an over-re­liance on rat­ing agen­cies. Eq­ui­ties of­fer a stark con­trast. Bro­kers pro­vide pri­mary cover­age (e.g. data) while as­set man­agers fo­cus on more value-added sec­ondary anal­y­sis.

Four years ago, the Eco­nomic Sur­vey called for a bond-cur­rency-de­riv­a­tive nexus com­pa­ra­ble to eq­uity mar­ket lev­els. Alas too lit­tle has been done in that di­rec­tion so far.


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