ANZ trumpets a 2012 bond market rebound

The value of local currency bonds maturing in 2012 is as high as VND80 trillion ($3.86 billion), more than double 2010’s figure, according to the report into Vietnam’s bond market.

The report, released at the group’s April 7 conference, said: “Those investment flows will need a channel to re-invest, which is likely to animate the nation’s bond market in 2012.”

Moreover, this VND80 trillion volume will be boosted by the VND55 trillion ($2.67 billion) worth of bonds maturing in 2011. With this year’s macroeconomic movements obviously discouraging the cashing in of bonds, this VND55 trillion would be reinvested again in 2012, said ANZ’s head of global markets Vietnam Phung Thi Thu Huong.

This vast cash amount - more than VND130 trillion ($6.28 billion) - was promising to make 2012 “very exciting” for bond issuers, said Huong.

Before this gold rush, however, there are still a few difficult months ahead.

The year 2011 is expected to be a difficult one for the nation’s bond issuances. Investors are predicted to keep their cash out of the bond market because of the continuous driving up of onshore deposit interest rates by inflation and the government’s tightening monetary policy.

In fact, all of the government bond issuances in March flopped with a tiny as 1-2 per cent the issuance’s value sold. But ANZ experts believe this year’s poor outlook would serve as a launching pad for a better 2012.

As the report indicates, the same confluence of events occurred in 2008 when bond investors rushed in to bail out Vietnam given the inflation and interest rates hike. The years 2009 and 2010 then witnessed the bond market strongly rebounding thanks to investors’ disbursing demand after the crisis. The total issuance value in 2010 reached VND124 trillion ($6 billion) doubling that seen in 2006.

However, a buzzing bond market in 2012 would be mainly the result of interest shown by domestic investors, according to the report.

Offshore investors were expected to stay cautious given the depreciating trend of the Vietnamese currency.

Vietnam’s year-on-year inflation is now highest among the emerging Asia nations at 12.3 per cent, far outstripping second-placed India’s 8.3 per cent. 

At the same time, the nation’s trade deficit remained large which was likely to speed up inflation momentum, said ANZ’s chief economist for Asia Paul Gruenwald.

“Further dong depreciation given persistent balance of payments pressure will continue to impact offshore demand for dong bonds,” said Gruenwald.