Bright spot in bond auctions

On December 2, the State Treasury sold VND300 billion ($14.4 million) worth of three-year bonds with four bidders registered for VND600 billion ($24.8 million) with expected yields ranging from 11.5 -14 per cent per year

However, the auction of VND1 trillion ($48.3 million) in five-year treasury bonds failed. One bidder was keen on yields of 12.4-12.5 per cent per annum for VND400 million ($19.3 million), however, there was no wining rate for the paper.

The results strongly outperformed those of the previous three weeks, in which the Treasury had raised just VND17 billion ($821,256) and VND100 billion ($4.8 million) respectively in November 24 and November 17 auctions, while failing to sell any of its offer in November 10 session.

Such good results were a result from increasingly government moves to stabilise the local economy. Early this week, financial sector was stirred by large-scale rumour that the government would lower depositing interest rate cap down from 14 per cent to 12 per cent.

Given low consumer price index growth for November, accompanied with the government’s increasing determination of restructuring local bank sector, the rumor was no surprise.

“The result clearly reflected expectations among investors about macroeconomic stabilisation,” said Do Ngoc Quynh, general secretary for Vietnam Bond Market Association.

Meanwhile, Quynh said major banks had “extremely good liquidity with large idle fund sources” and had been encouraged by such positive signs. “Given ongoing volatile market, those investors tend to cash in on government bonds which are a safe investing channel.”

Vu Hoang Chuong, head of EVN Finance Investment, said the expectation among commercial banks about lowering interest rates had lured it back to the bond market where yields for three- and five-note were skimming around 12 per cent.

"The bond market is very sensitive to the interest rates fixed by the central bank," said Chuong.

Actually, interbank interest rates sharply reduced within recent days. Interbank rates for overnight term plunged on Monday, November 28, to 11.5-12.5 per cent from the previous week’s range of 14-15 per cent, while the rates for one month term sharply down to 15 per cent from 20 per cent.

On Wednesday, November 30, Vietnam Development Bank’s government bond auction had also gained surprising success, with all the VND2.5 trillion ($120 million) worth of government bond volume offered sold at yields ranging from 12.2-12.25 per cent.

"Banks have to arrange funds to repay due loans in the end of the year," said Chuong.