Introduction

The financial sector is a crucial sector of any economy. A country’s business environment, investment, economic prospects, social dimensions even poverty are affected by financial market. The available vast empirical and analytical literature suggest that in addition to other economic factors, the performance of long term economic growth and welfare of a country are related to its degree of financial sector development. Developed countries’ experience suggests that strong government bond market creates favorable environment for the development of an efficient corporate bond market although it is not always essential for a country to develop a government securities market. The financial markets, pivotal point of financial sector, execute a crucial role within the global economic system such as attracting and allocating savings, setting interest rate and discovering the prices of financial assets (Rose, 2003). A well diversified financial sector is highly dependent on the extreme collaboration of financing from equity market, bond market, and banks. The government bond market forms the backbone of a modern securities market in both developed and developing countries.

Bangladesh has not been blessed with the contribution of both Corporate and Government bonds and consequently experiences the poor economic growth. With the current financial structure, characterizing the dominating presence of commercial banks, particularly the State Owned Commercial Banks (SCBs), the debt market of Bangladesh is very small relative to other South Asian countries amounting only 5.5 percent of country’s GDP (Mujeri and Rahman 2008). It is in the light of above perspective; this report seeks to explore some prerequisites to a sustainable bond market by studying available literature, especially for the Government segment, and putting some instructions for the development