Transactions of debentures in the secondary market surged more than tenfold in the last fiscal year, reflecting a growing shift among investors toward fixed-income instruments offering higher and more stable returns.
Data from Nepal Stock Exchange (Nepse) shows that trading of debentures rose by a whopping 927.15 percent in 2025/26 to Rs 34.26bn from Rs 3.33bn in 2024/25. More than 30m units of debentures were traded in 2025/25 compared to mere 3.1m units in the previous fiscal year.
Interestingly, a bulk of debenture transactions in fiscal year 2025/26, took place in Asar (mid-June to mid-July), the final month of the fiscal year. Monthly data show a sharp spike toward year-end, with transactions worth Rs 57.32m in Baishakh (mid-April to mid-May), rising significantly to Rs 4.69bn in Jestha (mid-May to mid-June), before surging to Rs 26.20bn in Asar.
Debenture transactions have remained strong even after the end of the fiscal year. For instance, debentures worth Rs 233m were traded on July 27 alone—nearly four times the total transactions recorded in the entire month of Baishakh.
The surge has come despite a slowdown in market activities on the country’s only bourse in 2025/26. Nepse data shows, total turnover in the secondary market fell 24.51 percent to Rs 1,601bn in 2025/26, down from Rs 2,124bn a year earlier. Debentures worth more than Rs 4bn in a single trading session. This shows the growing preference among investors for debentures.
Market participants say the explosive growth in debenture trading shows a gradual shift in investor preference. They say more investors are diversifying their portfolio due to falling interest rates on bank deposits and the need for portfolio diversification. The increased volatility in equity prices is also forcing investors toward debt securities which are relatively stable, they added.
A debenture is a type of debt instrument issued by companies, banks or financial institutions to raise long-term funds from investors. Unlike shares, which represent ownership in a company, debentures are essentially loans taken by the issuer from the public. Investors receive a fixed rate of interest over a specified period and the principal amount is repaid upon maturity.
Banks and financial institutions generally issue debentures to meet long-term funding needs, maintain regulatory capital requirements and diversify their sources of funds beyond deposits. They allow issuers to lock in funds for longer durations at predetermined interest rates.
Since debentures offer fixed returns and carry lower volatility, they are considered safer for investors than equities. They are attractive instruments for investors looking for predictable income as interest payments on debentures are made twice a year. While investors can earn fixed interest on debentures issued by companies or banks, they can also make a profit by selling them before maturity if prices rise in the secondary market.
Debentures with coupon rates as high as 11 percent are in strong demand in the secondary market, as these fixed returns are significantly higher than the interest rates of below four percent currently offered by banks on fixed deposits. Even in this low-interest environment, new corporate debentures issued in 2025/26 are offering interest rates in the range of 6-8 percent.
Typically priced at Rs 1,000 per unit, debentures require a different investment approach than equities, where price movements can offer quick gains. This has made them less appealing to short-term traders but increasingly relevant for long-term investors seeking stable income.
Market participants say the government’s preparation to bring more institutional investors into the market will help boost debenture trading in the coming years as these investors often look for stable, long-term gains. As investors continue to diversify their portfolio and seek stable returns amid declining deposit rates, the demand for debentures will increase further in the capital market.
