Bond issuer keeps eye on the bigger picture

Investors’ employment of the barbell strategy could pay dividends

On July 15, the State Treasury offered VND1.5 trillion ($78.9 million) worth of five-year papers. Tenders placed total bid of VND2.3 trillion ($121 million) at coupons from 10.1 to 11.0 per cent, per year. However, only VND550 billion ($28.9 million) was taken at rate of 10.3 per cent, per year.

Last week’s auction for five-year bonds was just an additional offering following on from the previous session on July 2 where the issuer sold VND950 billion ($50 million) worth of five-year paper out of VND1 trillion on offer at coupon rate of 10.4 per cent, per year. The State Treasury also sold all VND1 trillion ($52.5 million) worth of five-year paper at 10.95 per cent, per year on June 21.

After a series of failed auctions and underwritings for 10-year treasuries in the primary market, in the calendar there are no more offers of 10-year government bonds in upcoming sessions.

Nguyen Tan Thang, Ho Chi Minh City Securities Corporation’s head of fixed income research, said the Ministry of Finance may be anticipating a further reduction in long-term yields as observers still see demand at these tenors.

He added that much of recent demand in the government bond secondary market happened as investors applied a “barbell strategy”. This hopes to capture yields at the long end, whilst buying liquidity insurance at the short-end. “Investing in the long-end of the barbell allows them to lock in attractive long-term yields while buying at the very liquid short end allows for a quick exit should the bond market cycle turn,” said Thang.

In the first half of 2010, Vietnam’s balance of payment recorded $3.44 billion surplus and according to the State Bank, a sum of $1.8 billion was injected in to local stock market.

By Thai Hien