Vietnam likely to launch bond derivative market in Q1

Viet Nam will likely launch its bond derivatives market in the first quarter of this year. - Photo cafef.vn

The development of the derivatives market is part of the Government’s strategy to support the country’s stock market by providing more instruments to hedge risks and attract more investment.

According to the announcement by the Ha Noi Stock Exchange in June 2016, the derivatives market will initially start with stock index and government bond (G-bond) futures.

The local G-bond market witnessed positive performance last year with total amount raised through the Ha Noi Stock Exchange hitting a record VND316.73 trillion (US$14 billion), a rise of 26.9 per cent compared to the previous year, the northern exchange reported in the bond market review last week.

G-bonds outstanding have reached 26 per cent of the country’s GDP as of December 31, 2016.

The participation of foreign investors increased in both transaction value and investor structure. They accounted for 12.4 per cent of total buyers, up 8.4 per cent over the previous year, while their transaction value rose 88 per cent year-on-year.

The total listing value of G-bonds reached VND930.53 trillion, up 23.5 per cent over 2015. The average maturity extended to 5.21 years in 2016.

Transactions on the secondary markets also improved with total value rising 73.8 per cent over the previous year, averaging VND6.35 trillion per session.

The Ministry of Finance has set the mobilisation target of VND250 trillion worth of G-bond issuance in 2017.

The 2017-20 development roadmap

The finance ministry plans to submit the 2017-20 roadmap for the local bond market to the Prime Minister this year. Following which, it will enhance co-ordination between fiscal and monetary measures to better regulate the financial market.

In the primary market, a pilot project of issuing floating rate G-bonds will be implemented from the second quarter of 2017. The ministry will continue to issue notes with long terms of 20 years and 30 years.

In the secondary market, the bond derivatives market will be launched in the first quarter and settlement function will be transferred to the central bank.

In a move to develop the corporate bond market, a database for corporate bonds will be built to improve transparency in the market.

The State Treasury has announced it will diversify maturity of its G-bonds this year by between below one year to 30 years, focusing on the long term to extend the average maturity and reduce the pressure on the Government’s debt payment in the short term.

Five-year to 10-year bonds will account for 60 per cent of total issuance while 1-3 year terms and 15-year terms onwards will each make up 20 per cent of total issuance.