Bond Market won’t be bustling in 2011

Trinh Hoai Giang

The gloomy prospects for the bond market can be seen most clearly when looking into the base of investors, claims Giang. Namely, domestic investors are now mainly a few commercial banks which can afford to invest in the bond sector.

Those banks, however, will also face the hurdle of high interest rates, which is “cannot lower in the upcoming second quarter” according to Giang. “And if it does,” he added “the reduction will be very little.”

As the vice chairman explained, inflation, the “root cause of high interest rates” has not been firmly curbed by the government yet. Moreover, the government had set a prior target to stabilise the macro-economy, which means hardly any monetary policy would ease the interest rate.

Bank’s deposit interest rates are kept at a high level of 14 to 15 per cent per year, whilst bonds yield is much lower – just 12 per cent. The bond market, therefore, is hardly attractive enough to see a sudden rise in liquidity in 2011, noted Giang.

Besides, according to Giang, the exchange rate is under strong pressure which will badly affect the local bond market. Namely, the current account deficit, overspending of the budget, and the trade deficit are all among the factors which are likely to make local currency devaluate further.

Liquidity, a very important factor for the market as well, has seen no sign of an improvement in 2011 as the government so far has had done little to re-structure the already weak bond market.

“The great number of bonds has not yet been lessened to facilitate the trade, while bond trade’s fees have not been cutting down also,” he said.

As liquidity is seen as of great interest to foreigners when investing in Vietnam’s market, Giang believes the “shock of liquidity” in 2008 is seemingly obsessing them still.

“They continue to keep cautious, as when something unexpected happens, the possibility to sell off bonds remains slight,” said Giang.

Amid the gloomy outlook of the macro-economy for the bond market, bond issuing for 2011 is estimated by Vietnam Bond Association to be as high as VND100 trillion ($5 billion) in value, which is likely to far exceed demand for purchase.