All necessary infrastructure is in place at the MSE to auction Mongolian government bond at the primary market, says a source at the exchange. High ranking officials in charge of Mongolia’s fiscal policy previously said that the Ministry of Finance plans to auction Mongolian government bond at the bourse. Between 2014 and 2017, the Government of Mongolia auctioned the security on the interbank market through Mongolbank and traded at the Mongolian Stock Exchange. The money raised was used to cover budget deficit. The Ministry of Finance ended such transaction in October 2017. But in early 2018, Deputy Finance Minister Bulgantuya Khurelbaatar admitted that the authorities were working on an auctioning platform at the Mongolian Stock Exchange for sovereign bond primary market trading. With the new system in place, the ministries will no longer have to depend on commercial banks.

ZGM sat down with specialist at the Public communications division at the MSE, P.Nyamdorj.

-Minister of Finance previously announced the plan to resume sovereign bond auction on the domestic primary market on MSE. We know the infrastructure was being tested. Has it been finalized?

-All preparatory work is completed. All issues related to the auctioning platform have been solved. Government bond was a major player at Mongolia’s securities market in 2017. As for 2018, sovereign bond is only being traded at secondary market. Sovereign bond is attractive as it offers a variety of possibilities to investors, including low risk, high liquidity and immunity from taxation.

-So government bond was not auctioned on primary market in 2018?

-Between 2014-2017, Mongolbank and the Mongolian Stock Exchange actively conducted government bond offering at the domestic market, following the decision of Ministry of Finance. But primary market auction didn’t take place at the MSE since October 2017. Fiscal regulations in place limited government bond issuance this year due to its high yield.

-How much sovereign bond was traded at the MSE last year? How did the yield differ?

-In total, MNT 772.5 billion worth of sovereign bond was traded at the MSE. After re-introducing auctioning system for sovereign bond primary market offering, a total of MNT 9.3 billion bond was traded at MSE on three separate offerings. During the first auction, investors ordered to buy 124,900 sovereign bond which was twice the offered amount, and the asking yield fell from 11.7 percent to 10.3 percent.

-We’ve been seeing that government bond was being traded at the secondary market at the MSE?

-Yes. Secondary market offering is taking place almost every week. But the volume is inconsistent. We’re seeing seasonal influence affecting the trading volumes. We’re also seeing great interest from international investors for Mongolia’s sovereign bond. The increase became more notable in late 2017. We expect trading volumes to pick up this fall. Mongolia’s sovereign bond will not mature until 2020. Therefore, until then, we’ll see it change hands between investors. So far, sovereign bond is not being offered on primary market.

Published Date:2018-07-27