Bond market is set to remain a safe haven

March 14, 2013 | 15:45
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After a successful year, Vietnam plans to issue more government bonds this year to cash in on investors’ good appetite.

“Despite many economic difficulties last year, the bond market achieved an important development step in the mobilisation of financial resources for the state budget, financial institutions and enterprises,” Deputy Minister of Finance Tran Xuan Ha told a meeting which gathered key local bond market participants last week in Hanoi.

Statistics tell part of the story. In 2012, the government bond issuance totalled VND145.1 trillion ($6.97 billion), far surpassing the 2011 total of VND80.7 trillion ($3.87 billion).

In 2012, key cities such as Ho Chi Minh City, Danang and Hanoi began issuing municipal bonds. Till December 31, 2012, the total outstanding volume of municipal bonds reached VND9.1 trillion ($434 million), equivalent to 0.31 per cent of the country’s gross domestic product (GDP).

In the secondary market last year, liquidity saw many positive improvements with the traded bond volume staying high at more than VND1 trillion ($48 million) per day averagely.

This had helped boost the velocity of capital and allowed for the transfer of short-term capital into long-term funds for the country’s economic development, said Ha.

In terms of corporate bonds, the total issuance in 2012 hit VND24.3 trillion ($1.17 billion) and total outstanding corporate bond volume totalled VND25.9 trillion ($1.25 million) or 0.88 per cent of GDP. All issuances were through private placements.

The Ministry of Finance (MoF) has instructed the Vietnam State Treasury to issue VND150 trillion ($7.14 billion) of government bonds in 2013, of which VND90 trillion ($4.3 billion) would finance the budget deficit and VND60 trillion ($2.84 billion) be earmarked for several infrastructure projects.

Specifically, the plan composition by tenure for T-bills was VND30 trillion ($1.44 billion) for two years, VND30 trillion for three years, VND40 trillion for five years, VND40 trillion for 10 years and VND10 trillion for 15 years bond.

For government-guaranteed bonds, 2013’s targeted issuance volume is around VND58.1 trillion, of which VND18.1 trillion is for the Vietnam Bank for Social Policies and the remaining VND40 trillion is for the Vietnam Development Bank. The issuance volumes of government-guaranteed bonds in 2011 and 2012 were VND45.2 trillion and VND52.6 trillion, respectively.

“In general, we believe that  the growth of government bond issuance in 2012 was contributed to by lower credit growth in the banking system. Thus, if there is no significant improvement for credit growth in 2013, government bonds will still be a safe place for commercial banks in the restructuring process,” stated Saigon-Hanoi Securities Incorporation in a bond report.

Currently, the Hanoi Stock Exchange is working on the cross currency repos and might introduce this product by the second quarter of 2013. If market participants are interested, they would permit the trading of this product from the fourth quarter of 2013.

A mechanism for creating primary dealers in the local bond market would be finalised this month. The MoF is also working on voluntary pension insurance or voluntary pension fund, to create more market participants in the future.

Meanwhile, the State Securities Commission is drafting a government decree on derivatives, with a focus on equity and bond index derivatives, with the first draft available in March and the decree expected to be issued late 2013.  Other measures would still include reducing the number of tickers and large-size issuances, which authorities have instituted since 2011.

The Hanoi Stock Exchange (HNX) last week held for the first time an appreciation ceremony for the government bond market’s most active members, after the market witnessed extraordinarily growth in 2012. Vietinbank, the top primary market player, and others offer their forecasts to VIR.

There is probably market correction in 2013’s second half
Vu Anh Duc, Deputy director of Investment Department, Vietinbank

I can assert that 2012 has been a very successful year for Vietinbank in bond investments, in which we met both the purposes of ensuring liquidity and investing efficiently. As bond investments are always major and important parts in Vietinbank’s business, we built a  bond  investment plan from the beginning of 2012 based on forecasts about interest movements and market supply-demand.

Regarding our top primary market position, this reflects our work actively bidding for government bonds in the primary market and enhancing our relationship with the State Treasury. Vietinbank is one of the first members bidding for bonds via the HNX and we were named the top bidding member by HNX in 2009. Until now, we have been bidding frequently on the exchange and actively contributing opinions for developing the market.

In general, many difficulties still loom in 2013, although the government has taken some action in stabilising the economy and unchoking credit flows. In the context that credit is expected to hardly jump this year, debt instruments like government bonds are still a quite safe investment channel for banks.

But there will be some corrections in the market, in my opinion. I think that in the first half of this year, bond yield in the primary market will modestly fall thanks to a quite large demand for bonds.

Bond investment’s margin in 2012 equaled to that of credit
Nguyen Huong Loan, Head of Wholesale banking, Maritime Bank (MSB) – the No.1 member on secondary market

From 2009 till now, MSB always used about 15 per cent of its total assets for bond investments, in order to ensure our liquidity. Investors who hold bonds in 2012 will get a significant profit from this channel and MSB is part of this trend. If calculating the profit based on market price at the end of 2012, our profit from bond investments is remarkable with margin equaling  that of credit activities.

We forecast that 2013 will still be an active year of bond trading and the profitability of this security is still attractive.

In fact, there have been new investors in bond market from the beginning of 2013 and the Ministry of Finance (MoF) plans to increase the mobilising target. I appreciate the work of the MoF and State Treasury converting and merging bond codes, which helps much in raising the liquidity of the market.

Vietnamese government bonds are increasingly attractive to foreign investors
Do Ngoc Quynh, Head of Treasury Department, BIDV

BIDV has been highly active in the government bond market, with the second position in primary market and fourth in the secondary market. From the end of 2010 to the end of 2012, the percentage of our trading revenue in the secondary market to that of the whole market had soared from 3 to 9 per cent, while the percentage of profits from bond trading profits to our total profits also jumped from 5 to nearly 14 per cent.

According to my assessment, the bond market will continue to be quite active in 2013.

However, as interest rates had strongly fallen in 2012 while inflation is possibly coming back this year due to money easing policies last year, the bond yield would see a slight fall in 2013 compared with the yield fall in 2012.

By Hai Trang

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