Corporate bonds

What is a corporate bond?

A corporate bond is a loan you make to a company or a bank. Companies need money to grow, build factories or repay older debts, and instead of going to a bank they can borrow directly from people. You are the lender and the company is the borrower.

In return the company promises regular interest and repayment at the end. The big difference from a government bond is who owes you: the company, not the government. If the company runs into trouble, your money can get stuck too.

How it works

Instead of taking a bank loan, a company can borrow directly from investors by issuing bonds. If you buy one, the company pays interest (the coupon) at set intervals and repays the principal at maturity. The coupon may be fixed, or floating: a reference rate plus a margin.

In Bangladesh, bond issues are approved by the Bangladesh Securities and Exchange Commission (BSEC), mainly under the BSEC (Debt Securities) Rules 2021. Banks issuing bonds also need Bangladesh Bank’s approval. An issue usually comes with a trustee, whose job is to look after investors’ interests, and a credit rating.

In practice most corporate bonds in Bangladesh are sold by private placement, that is, to a few selected institutions, often in units of lakhs or crores of taka. For ordinary investors there are two main routes: applying in a public offer, or buying listed bonds on the stock exchange through a BO account.

Common types

Ordinary corporate bonds

A set term with a fixed or floating coupon. Some are secured on assets; most are unsecured.

Subordinated bonds

Issued mainly by banks to build up capital, usually for 5–7 years. If the bank fails, depositors and other creditors are paid first; subordinated bondholders come after them.

Perpetual bonds

No maturity date; the issuer may buy them back on set conditions but does not have to. Terms can allow coupons to be withheld or the value written down if losses occur. Under BSEC rules at least 10% must be offered to the public, and they are listed on the stock exchange.

Zero-coupon bonds

No interest along the way; bought at a discount and repaid at face value.

Convertible bonds and corporate sukuk

Some bonds can later be converted into shares; some companies issue Shariah-based sukuk.

What a credit rating does and does not tell you

A credit rating agency gives an opinion on the issuer’s ability to repay, in letters (such as AAA, AA, A, BBB…). The lower the rating, the higher the assumed risk, and usually the higher the coupon the issuer has to pay.

A rating is not a guarantee. It is an opinion at a point in time, it can change, and highly rated issuers have run into trouble before. Look at the rating, but do not treat it as your only check.

Where the risks are

Bonds have no deposit protection like an FDR. If you buy a bank’s subordinated or perpetual bond you are not a depositor, so if the bank gets into trouble your money is not covered by the protected limit. When several weak banks were put into merger in 2025, serious questions arose over the money owed on bonds they had issued.

Trading is very thin. Even listed bonds often go days without a trade, so if you need to sell you may have to accept less than face value. Most bank bonds so far have been bought by other banks and institutions; participation by ordinary investors has been very low.

There is interest-rate risk too. When market rates rise, the price of a fixed-coupon bond falls, just as with treasury bonds.

What return to expect

There is no single, easy-to-find official statistic for bond returns in Bangladesh, and every bond has its own terms. Many bank bonds issued over 2021–2023 stated coupons within a band of 6–10% a year, or as a reference rate (such as an average deposit rate) plus a margin of 2–3 percentage points.

On floating-rate bonds the coupon moves with the reference rate over time, within any floor and cap, so to know a bond’s current coupon you need its prospectus or the trustee’s announcements.

A coupon above government bonds is payment for extra risk. In some recent years, yields on risk-free government bills and bonds were higher than returns on many bank bonds, which has been cited as one reason for weak investor interest.

Tax

Bond interest is part of your total income, and tax is usually deducted at source when it is paid. The rate is set by the Income Tax Act 2023 and each year’s Finance Act and can change. When you file a return, the tax already deducted is set against your total tax.

Income from approved zero-coupon bonds was tax-free for many years; the Finance Bill 2026 proposed removing that exemption. Check the rules for the year before you buy. Gains from selling on the stock exchange may be taxed differently as well.

Tax rules can change with each year’s Finance Act. Before a big decision, check the latest rules or speak to a tax adviser.

How to get started

1. Open a BO account, or if you already have one, tell your broker you want to buy bonds.
2. Find listed bonds on the stock exchange websites; public offers are announced by BSEC and the exchanges.
3. Read the prospectus or information document for any bond you are interested in: coupon, term, subordinated or perpetual, rating and trustee.
4. Check whether it has traded recently, and at what price.
5. Find out the broker’s commission and other charges.

Check before you start

• Do I understand what happens if the issuer cannot repay?
• Is it subordinated or perpetual, and where does that put me in the queue?
• What is the rating, when was it given and when was it last updated?
• Is the coupon fixed or floating, and what are the floor and cap?
• If I cannot sell, how long can I manage without this money?
• Compared with government bond yields at the time, does the extra return seem worth the extra risk?

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