Bond trading in Nepal’s secondary securities market has surged over the past three years, driven by declining interest rates on bank deposits.

According to data from the Nepal Stock Exchange Limited (NEPSE), bond trading has increased more than 15-fold in the first eight months of the current fiscal year (FY) 2024/25 compared to the same period in FY 2023/24. In FY 2023/24, bond trading was valued at over Rs 150 million, while it has already exceeded Rs 2.3 billion in the same period of FY 2024/25.

The volume of bonds traded has also risen significantly. Over 171,000 units were traded in the first eight months of FY 2023/24, whereas this figure has surged to more than 2.128 million units in the current fiscal year. Bond trading had also increased in FY 2023/24 compared to the preceding year.

Investor Tilak Koirala attributed this growing interest to the lower risk associated with bonds. However, he noted that many individual investors still lack awareness about bond investments.

“Bonds are safer than stocks because they have a fixed tenure and a guaranteed interest rate,” Koirala explained. “However, individual investors are more attracted to low-value stocks, while institutional investors dominate bond trading.”

Currently, 73 bonds issued by banks, financial institutions, and the government are listed in the secondary market. Additionally, nine companies have applied to the Securities Board of Nepal (SEBON) for bond issuance.

Despite the growing share of bonds in the stock market, the government has struggled to expand the bond market, particularly for private-sector corporate bonds. Investors have criticized the government for failing to implement its budget plan to promote bond trading.

“Bonds and mutual funds have been largely neglected in Nepal,” Koirala said. “To diversify the capital market, companies from sectors beyond banking and financial institutions—such as insurance—should also issue bonds.”

A senior NEPSE official noted that investor interest in bonds has increased as banks and financial institutions have lowered deposit rates on interest. Institutional investors, rather than individuals, are driving the surge in bond trading.

The official pointed out that bond interest rates are currently higher than fixed-term deposit rates, making them an attractive investment option. While commercial banks are offering an average deposit interest rate of 4.62 percent, development banks 5.41 percent, and finance companies 6.47 percent, bonds listed in the secondary market offer returns of up to 12 percent.

For instance, ICFC Finance and Goodwill Finance have issued bonds with a 12 percent interest rate, maturing in 2026, and listed them in the secondary market. NEPSE data shows that most listed bonds offer interest rates above 8 percent.