Bond jump reflects badly on growth

According to Hanoi Stock Exchange (HNX), total government bond volumes issued during the first five months of 2013 reached more than VND112 trillion ($5.38 billion), equivalent to 70 per cent of 2012’s volume of VND160 trillion ($7.69 billion).

In the secondary market, the total outright transactions accounted  for the whole of 2012’s volume of VND130 trillion ($6.25 billion). Plus with repo transactions, the total transactions value in the secondary market hit VND186 trillion ($8.9 billion), matching the total for 2012 in its entirety.

Meanwhile, the latest edition of the Asian Development Bank’s (ADB) Asia Bond Monitor also showed that in the first quarter of 2013, Vietnam registered the region’s most rapid year-on-year growth in the government bond market, posting a 64.6 per cent expansion to $29 billion, fueled by heavy issuance of treasury, central bank, and state-owned enterprise bonds.

In contrast, the country’s corporate bond market shrank 47.2 per cent to $1 billion.

Many experts said the government bond issuance explosion was contributed by lower credit growth in the banking system, so if no significant improvement in credit growth was seen in 2013, government bonds would still be a safe place for commercial banks in the restructuring process.

“Such big issuance volume is  good news in terms of capital mobilisation for the state budget. However, it is a bad sign that commercial banks now do not know where to lend,” said the chief of a treasury department of a state-run bank.

By May 22, credit rose by only 2.29 per cent year-on-year, according to the State Bank, much lower than the target of 12 per cent for the whole year.

Government bond auctions in recent weeks also saw a sharp fall in bond yields. At the May 21 auction, two-year bond yields recorded the never-before low level at 6.8 per cent per annum.

Meanwhile, in the May 29 auction, the five-year bond yields drop the record low at 7.92 per cent per year since August 2007, according to Bloomberg.

The auction also witnessed strong demand of banks for government bonds with VND6 trillion ($287 million) for two and three and five-year terms bonds sold out and the yields slashing by 25-48 basic points. There were 17-19 members in the auction and the bidding volume was 2.5-2.7 times higher than offering volume.

Bond yields have been falling in recent weeks also because of increased bond supplies and expectations of a rate cut after Vietnam recorded inflation in May of 6.36 per cent, the lowest since November 2009. “Bond yields in the primary market went down further than expected,” said Saigon Securities Incorporation (SSI) in its report, adding that big banks, which controlled the government bond market, would push bond yields down much lower.

Vietcombank Securities also estimated that the demand for government bonds  would still be sustained if inflation is curbed effectively and credit growth remains lower than expected.

“Amid the plentiful liquidity in the banking system and big demand for government bond, we think that bond yields in short and medium terms will slightly decrease while the long-term yields may be flat,” said Vietcombank Securities.