State Treasury enters bond market as special investor

Tran Thi Hue, director of the Department of Treasury Management

Other than being the main issuer on the primary market of government bonds, it is said that Vietnam State Treasury (VST) is planning to become a secondary investor in this market. How has VST prepared for this new function?

Decree No.24/2016/ND-CP on national treasury management has, for the first time, allowed temporarily idle funds to be used to repurchase government bonds.

In more details, temporarily idle funds will be used in the following order of priority: advancing the central budget, advancing the provincial budget, be deposited at commercial banks with high safety ranking from the State Bank of Vietnam, and repurchasing government bonds. Based on this juridical mechanism, for the first time, VST is allowed to participate in the government bond market as a secondary investor.

The decree was enacted on January 1, 2017, but in 2017, VST’s participation was postponed due to complex preparation procedures, including staff training, and finalising procedures. Therefore, starting from 2018, VST will participate as a secondary investor in the government bond market.

Another remark of the 2018 government bond market is the introduction of the policy for investors to lend bonds for selling purposes, satisfying the diverse demands of investors, and accordingly, providing instruments for market leaders.

In your opinion, how will VST’s new role contribute to improving the government bond market’s liquidity?

As a secondary investor, the possibility of VST partaking in the government securities market depends on the availability of temporarily idle funds.

While VST’s participating as a secondary investor will help support market liquidity (the current transaction rate is around VND9 trillion per day), as a special member holding a significant impact on the market, VST will remain cautious before and during participation.

What changes will VST see as an issuer in 2018?

VST’s guidelines to attract capital in 2018 will continue to closely follow the quotas assigned by the Ministry of Finance (MoF). MoF is allocating room for issuance to each unit as well as constructing guidelines for the amount of capital to attract from the domestic and the international market. After receiving the quotas for 2018, VST will immediately start the operation.

Following the positive results on the primary market, while keeping the issuing guidelines for 2018, VST will strive to extend the terms of government bonds so that bonds with a term of five years or longer will account for 80 per cent of the total issued bonds.

In 2018, in an effort to restructure loans through government bonds, VST will focus on judging categorised debts to calculate issuance plans to rotate debts at maturity and extend peak debt for the upcoming period.

Also in 2018, a new feature of the bidding operation is that VST will encourage Vietnam Social Insurance to directly participate in the process instead of directly purchasing from VST. This will help the market function more smoothly and transparently.

In order to increase the attractiveness of primary bonds products, will VST introduce new products such as floating rate notes in 2018?

The idea of issuing floating rate bonds has been studied by the Department of Finance and Banking under the management of MoF since the end of 2016. However, an opinion poll of market participants indicated that not many are intrigued by the idea.

Therefore, in 2018, VST will not issue such products, and along with conducting research on possible products to satisfy investor demand, VST will continue to issue traditional products based on the expectations of investors.

A draft decree on issuing, registering, posting, and transacting government debt tools, which was composed to replace Decree No.01/2011/ND-CP on issuing government bonds, government-guaranteed bonds, and local government bonds with lots of new content, is currently being surveyed by MoF.

Likewise, this decree is expected to be enacted and enter into effect on July 1, 2018, at around the same time when the amended law for regulating public debt comes into effect. VST will then deploy new solutions to drive the bonds market in a more professional and effective direction.

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