Bond auctions get back on track

Government bonds are again welcomed by local credit institutions and foreign investors.

Do Ngoc Quynh, general secretary of Vietnam Bond Market Association, said government bond market prospects would continue to improve.

“After a dismal period during January-April, the demand for government  bonds is increasing on the back of improved macroeconomic indicators,” said Quynh.

In May and June, government bond issuers successfully sold VND30 trillion ($1.51 billion) worth of bonds, 20 times higher than during March-April.

“One of the most important signals for the market is the comeback of foreign portfolio investors. In the first four months of the year, they stood outside the market. But in May and June, they have come back with net buying volumes of VND3 trillion ($151 million),” said Quynh.

On July 7, a government bond auction finished with VND1.75 trillion ($85 million) worth of three-year papers changing hands and VND1.45 trillion ($73 million) worth of five-year bonds taken out of VND2 trillion ($98 million) each on offer.

For five-year papers, the coupon rate was 12.3 per cent per year, unchanged from the previous week, while offered rates for three-year bonds went down by 0.1 per cent, per year compared with previous week to 12.2 per cent, per year.

A Vietcombank source said news of lending rate cuts on open market operations (OMO) was positive.

Last week, the State Bank cut one-week lending rates via OMOs from 15 to 14 per cent, per year after continuous hikes since last November from 8 to 15 per cent, per year. Via OMOs, banks borrowed money from the authority with collateral being valuable papers such as government bonds.

Nguyen Thi Kim Thanh, head of the central bank’s Banking Strategy Institute, said that macroeconomy was stabilising and bond yields could drop.

“The consumer price index (CPI) has shown a slowdown as price hikes have been absorbed and thus buying bonds is now profitable,” said Thanh.

June’s month-on-month CPI came in at 1.09 per cent, the lowest monthly level in last six months.

On the interest rate front, State Bank governor Nguyen Van Giau confirmed that once the inflation was brought under control, market interest rates would drop.

Lending limits could be another driver for bond demands. According to the State Bank, by June 10, over 10 commercial banks had reached credit growth of 20 per cent, the cap set by the authority with two even exceeding the 20 per cent mark. In 2011, the State Bank set a uniform cap for all banks’ credit growth at 20 per cent.