Bond market shows some vital signs of life

Softening inflation data may encourage investors to grab more bonds

Bond coupons remain in a holding pattern as local lenders sit on the fence waiting to see how inflation bites before making decision.

Last Thursday, July 14, the State Treasury only sold VND1.2 trillion ($58 million) worth of three-year bonds and VND600 billion ($29 million) worth of five-year bonds out of VND2 trillion ($97.5 million) on offer. The sales ratio was 45 per cent.

The bond coupons were kept unchanged from previous auctions. For five-year papers, the coupon rate was set at 12.3 per cent per year while offered rate for three-year bonds was 12.2 per cent per year.

In the previous auction on July 7, the 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) on offer. The sales ratio was roughly 80 per cent.

A BIDV executive said that provincial inflation figures were set for release this week and local lenders, major buyers of government bonds with over 90 per cent of purchases in auctions, had opted to see inflation data go before making decisions.

June’s month-on-month consumer price index (CPI) growth came in at 1.09 per cent, the lowest monthly level in the last six months. However, by end of June, year-on-year CPI reached 20.8 per cent.

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

In the first four months of the year, foreign portfolio investors stood outside the bond market. But in May and June, they have come back with net buying volumes of VND3 trillion ($151 million).

Do Ngoc Quynh, general secretary of Vietnam Bond Market Association, expected the government bond market to improve during 2011 after a dismal January-April period, along with the economy’s recovery.

Lending limits could be another driver for bond demand. According to the State Bank, by June 10, over 10 commercial banks had reached the credit growth of 20 per cent, the cap set by the authority, with two of them 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.