Bonds flat on falling demand

On November 17, the government could only sell VND100 billion ($4.8 million) worth of five-year bonds, just 10 per cent of the auctioned volume, with a yield of 12.15 per cent, per year while the minimum bidding rate at 12.1 per cent, per annum.

The auctioning of the VND1 trillion ($48.3 million) three-year treasury bonds was failed. The coupon rate cap for that three-year paper was 12.1 per cent per year, while the minimum bidding rate was 12.15 per cent per year.

Vu Anh Duc, a bond dealer for Vietinbank’s Investment Department, said the result showed local lenders were less keen on government bonds. He added the mobilisation of VND100 billion ($4.8 million) in five-year bonds could be mainly pinned on insurance companies using government bonds to balance out their cash flows.

“Overly low coupon rates won’t attract tenders to join the market,” said Duc. Currently, deposit interest rates at banks are capped at 14 per cent, while the coupon rates for three-year and five-year bonds were only around 12 per cent.

Duc added the failure to attract banks to government bond auctions was caused by banks’ high demand for liquidity, a common phenomenon at this time of a year.

According to a recent report by the State Treasury, in the first 10 months of this year the body raised VND63 trillion ($3 billion), or 78.85 per cent of its target for the year.  Five-year and three-year bonds accounted for 34 per cent and 40 per cent, respectively. The lowest level was for 10-year bonds, making up just 2 per cent of the total mobilised funds.

Dao Viet Truong, former head of Research Department of Hanoi Securities Company, said the two main buyers of government bonds including local banks and Vietnam Social Insurance were struggling with tough market conditions.

But, Duc said last week’s result had to be considered successful compared to the previous week.
The November’s 10 auction was a whitewash with no takers for the State Treasury’s VND1 trillion ($48.3 million) worth of three-year bonds, and VND1 trillion in five-year paper.

To flog its three-year bonds and five-year paper, the country paid a minimum of 12.15 per cent per year and 11.8 per cent annually, respectively. There was no winning rate for either paper.