Government bond yields plummet

The Treasury yesterday successfully sold all VND2 trillion ($96.6 million) worth of three-year bonds at a rate of 11.6 per cent, the lowest level since April, 2011. All five-year notes, worth totaling VND2 trillion ($96.6 million), were sold at a rate of just 11.68 per cent.

The rates had consistently kept around 12.1-12.15 per cent during past months, just falling to below some 11.9 per cent in February 9’s session. The figures suddenly dipped last week, despite continuing high deposit rates of 14-19 per cent at commercial banks.

“Such low rates are the results of market expectation,” said Ngo Minh Hoa, bond analyst for Bao Viet Securities. “Bonds are becoming good investing channels for banks.”

The numbers of bidders also kept high at 19 bidders for three-year notes and 17 for five-year notes. The figures had soared since last week’s auction and continued strong in this week’s auction, implying that mid-scale banks had started to actively join the bond market as well.

“Those banks have few other choices to disburse their money,” said Doan Thi Thu Hoai, senior economist for Viet Capital Securities. “Mid-scale banks are also starting to join the bond market, instead of just major bank like it was before.”

Analysts said the sinking yield bonds and active sentiment on bond market implied an increasing strain on inter-bank market. As small banks are hard lacking money to cover operations and repay their debts, large and mid-scale banks do not dare to lend those banks and thus got a large idle money amount.

“Major banks have redundant money amount, but they do not dare to lend on the interbank market and cannot lend enterprises as credit growth is strongly restricted by the central bank,” said Tong Minh Tuan, head of research at Hanoi-based BIDV Securities. “Such redundant money is used to purchase government bonds to hedge risks, although the coupons are low.”

“It does not mean that major banks do not lack liquidity,” Tuan added.

Such liquidity strains were showed via continuously cooling down interbank interest rates, as major banks are strictly selecting only healthy borrowing banks to lend their money. The overnight lending rate on the interbank market declined to 10.5-11 per cent in Thursday from 11-12.5 per cent in Wednesday.

Also in the auction, VND1.8 trillion ($87 million) worth of two years notes were sold at rate of 11.59 per cent. But 10 year notes sold only VND100 billion ($4.83 million) out of VND1 trillion on offer, with rate fixed at 11.1 per cent.

Foreign bond investors, who are likely speculating on bonds on expectations about cooling down inflation in Vietnam, was said to help animate the auction.

“They have been interested in Vietnamese bonds since January, thanks to increasing forecast about declines in Vietnam’s interest rates,” Tuan said. “Actually, such coupons are very high to those foreign investors.”