Bonds start to regain appeal

Traders have returned to government bonds after issuers raised offered yields.

On April 21, VND350 billion ($17.5 million) worth of three-year bonds were taken at a 12.3 per cent, per year yield and VND301 billion ($15 million) worth of five-year bonds were taken at yield of 11.9 per cent, per year. The two lots were sold out of State Treasury’s offer of VND1 trillion ($48.3 million) worth of three-year bonds and VND1 trillion of five-year papers.

On April 22, Vietnam Development Bank successfully sold VND400 billion ($20 million) worth of 10-year government bonds out of VND500 billion ($25 million) on offer at yield of 12 per cent, per year.

It should be noted that those auctions were the first and second times in 2011 that government bond issuers accepted to pay a yield at 12-or-above per cent, per year.

The four consecutive failed auctions in March was the rationale behind Vietnam Bond Market Association’s (VMBA) call for higher yields. In March, bond issuers offered yield around 11-11.5 per cent, per year.

“However, the more bond issuers lift their offered yields, the more successful the auctions will be,” said a VMBA official.

A Vietcombank executive said the bond yield would further climb on the back of inflation.

April’s nationwide consumer price index (CPI) rose by 3.32 per cent against the previous month, bringing CPI of the past four months up to 9.64 per cent against December, 2010.

In response to inflationary pressure, the government confirmed its strong will to control inflation and restore confidence via cutting credit growth target from 23 to under 20 per cent for 2011.

Nguyen Dai Lai, vice head of the central bank’s Credit Information Centre, said that only yield of 12-or-above per cent, per year could lure bond buyers.

“Lending rates via open market operations (OMO) is set at 12 per cent per year. Thus, bond yield should exceed this mark,” said Lai.

On February 23, the State Bank decided to lift seven-day lending rate to local banks via OMO from 11 to 12 per cent, per year.

It should be noted that this rise was the fourth time since December, 2010 from the long-lasting 7 per cent, per year level to 12 per cent, per year.

If the government bond yield stays under 12 per cent per year mark, borrowing from the State Bank via OMO at 12 per cent, per year would become non-profitable.