Healthy bonds signal a revival

Local banks are getting more joy on the interbank market

Nguyen Thi Kim Thanh, head of the Banking Strategy Institute, said that macro economic indicators, especially the consumer price index (CPI) and market interest rate, were now in favour of the government bond market.

“Once the CPI starts dropping, market interest rates will go down in tandem, also government bond yields. As the price index might be on the way down in one or two months, buying bonds right now would be profitable,” said Thanh.

According to the General Statistics Office, Vietnam’s CPI in June rised 1.09 per cent against May, which indicates the growth of inflation is slowing down. The CPI in May and June grew 2.21 per cent and 3.32 per cent month-on-month, respectively.

On June 23, the State Treasury successfully sold new batches of bonds with dramatically increased amounts auctioned.

All VND2.5 trillion ($122 million) worth of three-year papers and VND2 trillion ($97.5 million) worth of five-year papers were taken. Meanwhile, VND2.3 trillion ($112.5 million) worth of two-year bonds changed hands out of VND2.5 trillion on offer.

It should be noted that the coupon rate continued falling. Five-year papers were 12.1 per cent per year, 0.2 per cent per year lower than the previous week. Meanwhile, coupon rates for three and two-year papers were 12.3 and 12.4 per cent, per year respectively.

On the interest rate front, State Bank governor Nguyen Van Giau confirmed that once the inflation was brought under control, the market interest rate would drop in tandem.

The interbank market is where local lenders borrow short-term funds from each other.

Dong interbank rates dropped dramatically from May with overnight rates trading within 12-13 per cent per year from their peak of 21-22 per cent, per year in May.

Giau said that foreign portfolio investors had started coming back to Vietnam’s government bond market.

Trinh Hoai Giang, vice chairman of Vietnam Bond Association, said old government bonds were maturing in large amounts in recent months, with banks having received a sizeable amount of cash.

“In June alone, around VND4.5 trillion ($217 million) worth of bonds mature. Amid high interest rates, lending becomes trickier and buying government bonds is popular,” said Giang.

Lending limits could also drive bond demand. According to the State Bank, by June 10, over 10 commercial banks have reached the credit growth of 20 per cent, the cap set by the authority with two of them even exceeding the 20 per cent mark. The State Bank set a uniform cap for all banks’ credit growth in 2011 at 20 per cent.