Bond market tipped for explosive growth

March 05, 2013 | 15:51

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The local bond market is set to explode and double its size by 2020.

The Ministry of Finance last week officially released Vietnam's bond market development roadmap till 2020, which priorities government bond development to be the basis for the bond and corporate bond markets.

The roadmap plans to boost the size of local currency bond market to 38 per cent of gross domestic product (GDP) by 2020, up from 2011's 18 per cent. The ratio was 11 per cent in 2005.

Of the 38 per cent, government bonds will make up 22 per cent, corporate bonds 7 per cent, while the remainder is for government-guaranteed and local administration bonds.

The Vietnamese bond market's current size is one of the smallest in Asia, with out-standing local currency bond making up 32 per cent of GDP in the Philippines, nearly 70 per cent in Thailand and nearly 100 per cent in Malaysia, according to Asia Bond Online's statistics.

To reach that goal, the government will release a number of regulations such as establishment of credit rating agencies, development of voluntary pension funds, setting up mechanism of deposit insurance for buying government bonds.

In the secondary market, the government will focus on development of first grade agency system with the market and government bond yield curve establishment.

The Vietnamese authorities also aimed to raise the percentages of investment funds and other investors than banks and insurance firms to 40 per cent of bond market investors by 2020. Currently, commercial banks make up as much as 90 per cent. Major investment funds such as pension funds are still absent.