Government bond yield to sink

Yields of 2-year, 3-year and 5-year notes all fell to the lowest range within 4 years, according to data of Vietcombank Securities. The yields are moving around 8-8.3 per cent for the 2-year and 3-year notes and around 9-9.15 per cent for the 5-year notes. In 2009, the government bond yield hit bottom due to effect of the government’s VND150 trillion ($7.2 billion) stimulus package at that time.

The 2013 bond performance has resulted from the fact that commercial banks are facing difficulty in lending given rising bad debts, and thus place otherwise idle money in bonds. The yield had continuously trended down since mid-2012.

“Commercial banks are still rushing to place money in bonds pushing down the yield,” said head of investment at a state-owned bank. “The output for credit remains very hard.”

Several observers expect credit activities will remain in difficulty in the first half of this year as the government’s measures for resolving bad debts remain vague while the property sector stays gloomy.

Last week, Saigon Securities Inc. (SSI) sent a note to clients forecasting that non-performing loans among commercial banks were likely to rise in the first quarter of 2013 due to effects of the State Bank’s newly-released Circular No.02/2013/TT-NHNN which expands the definition of bad debt for banks.

“We expect banks will continue to experience poor performance in the first half of 2013 mainly due to rising provisions and declining interest income triggered by lower credit growth,” said the top-tier brokerage house.

An executive at Vinawealth’s bond-focused fund VFF on the sidelines of its Hanoi-based road show last week said “there is big possibility for the government bond yield to break the bottom of 2009.” “It will continue trending down until the government finds out a clear measure to resolve the non-performing loans problem and stimulate the property market,” he noted.

At the road show, VFF stated it expected the government bond yield to trend down in 2013 and considered this time as suitable to buy in the securities market. It also expected the government to continue reducing interest rates in an effort to support enterprises and thus resulting in the government bond yield to drop further as well.