Bumper issuance hints at looming bond boom

The current economic situation means that Vietnamese government bonds
are seen as a risk free investment for many

Minister of Planning and Investment Bui Quang Vinh said under the government’s direction, the ministry was working on a plan for additional government bond issuance for the rest of this year worth VND60 trillion ($2.86 billion). “The government will submit the plan to the National Assembly for approval in October. The issuance will be used for building national highway 1 and 14,” said Vinh.

According to the State Treasury, in the second half of 2013, VND45.669 trillion ($2.17 billion) of government bonds will remain to be issued. Together with the Ministry of Planning and Investment’s (MPI), there will be around VND105.669 trillion ($5.03 billion) of government bonds issued from now till the year end.

“In the current situation of surplus liquidity and weak credit growth, government bonds will still be a safe place for commercial banks during the restructuring process,” said Vu Anh Duc, deputy director of Vietinbank’s Investment Department.

He added that the government bond issuance would still be good thanks to the trend to reduce interest rates and the demand of state budget spending for infrastructure projects.

Tran Van Dung, general director of the Hanoi Stock Exchange, also agreed that the government bond market would continue luring investors as bank deposits keep increasing. As banks need time to speed up low credit growth, there will be surplus cash at banks, creating a need to make investments, especially in government bonds.

Vietnamese government bond yields are still high compared to international markets. If the exchange rate and the trade balance were kept stable, Vietnamese government bonds would remain attractive, Dung said.

He added that the volume of government bonds currently on the market had generated demand for large transactions. He also believed that there was a strong possibility of developing the secondary market, and that government bonds remained a good investment choice for large-scale investors.

However, Vietinbank’s Duc said that with such huge volume of government bonds to be issued for the remainder of this year, the State Treasury would have to balance bond terms to lower payment pressure for the state budget and negative impacts on the market when these bonds mature.