Bonds jump into fashion due to yields

The State Treasury sold VND2,950 billion ($142.5 million) worth of bonds in the first half of October, according to the Hanoi Stock Exchange’s (HNX) statistics.

The improvement in dong-currency government bond market was recorded despite the Moody’s downgrade to both Vietnam’s foreign- and local-currency government bond to B2 from B1. The agency revised Vietnam’s credit rating downward on concerns about the government’s balance sheet and expected lower medium-term growth prospects, which stemmed from perceived weakness in the banking system.

The $142.5 million bond sales of October’s first half equaled 63 per cent of the $225.1 million sold by the treasury in September. In another measure of the rebound, the average ratio of actual sale to offering of those auctions in October reached 74 per cent  compared to the record low ratio of just 24.4 per cent in September’s auctions, as investors worried about accelerating inflation.

“The Moody’s downgrade does not affect our sentiment,” said Phan Thanh Son, head of markets at Techcombank, a top-tier joint stock bank. “Low results of recent auctions were just caused by concerns about inflation and banks’ increasing liquidity reserves at the year- end.”

Vu Anh Duc, vice head of investment department in Vietinbank - also downplayed the Moody’s downgrade: “I think the Moody’s downgrade in general does not affect the sentiment of investors towards local bonds particularly government bonds, as the investors mainly look at yield of the securities. Demand to invest in government bonds is still high towards the year-end.”

Meanwhile, investors said that rising yields for dong-currency government bonds were attracting them back to the investing channel. Expected higher inflation and government fund raising  pressures are pushing the Ministry of Finance to significantly lift the yields for its bonds.

In the State Treasury’s auctions on early October, winning yields of two- and three-year notes had risen by 10 basis points to 9.9-10 per cent. It kept the pace of a steadily yield  rise in August and September, in which yields rose in almost all auctions at 10-15 basis points each.

In early August, yields for two-year notes  were just less than 9 per cent. Bond investors, particularly major commercial banks with high ample liquidity given ability to provide credit to enterprises remains stuck, are having increasing demand for dong-currency government bond.