Vietnam saw some of the biggest reductions in government bond yields in Asia during 2012, as local banks’ short-term idle money increased due to the government’s tightened credit policies.
Do Ngoc Quynh, general secretary of the Vietnam Bond Market Association, gives VIR a close-up view of the local bond market.
Why have we seen a reduction in Vietnam government bond yield bids for most tenors since the beginning of this year and especially during last week?
It comes from positive signals from a series of governance policies including the government’s goal of reducing the interest rates, the State Bank’s credit growth rate limit and credit growth oriented from the non-manufacturing sector into the manufacturing sector. Besides, commercial banks looking to replace bonds maturing this year have decreased bond yields.
Why has the yield spread between two and 10-year maturities widened in Vietnam, while it narrowed in other Asian markets?
The increase of Vietnam government bond yield spreads between two and 10-year maturities in contrast to the narrowness between the same maturities in other countries is explained by offshore and domestic investors being more or less concerned about the stability of Vietnam’s macroeconomic picture. That’s why they basically invested in two-year bonds and the spread widened in Vietnam. Although, we are not able to say anything about the yield of 10 years or more, that kind of tenor is very illiquid in the secondary market with the demand mainly coming from the funds and insurance firms.
According to the Asian Development Bank, Vietnam’s bond market expanded at the fastest rate in the region in 2011. Will this trend continue this year?
There are several reasons to believe that Vietnam’s bond market will continuously expand at a fast rate this year. Firstly, Vietnam’s debt market has developed, especially in 2012 with the government’s push to restructure this market to stimulate the whole economy. This will gradually create a healthier economy.
Secondly, smooth government fiscal and monetary policies have progressively shown positive results reflecting good macroeconomic signals and financial market stability. This is an advantage for Vietnam’s market in comparison with other economies in attracting investors.
Thirdly, despite being in the early stage of development, Vietnam’s bond market also has an advantage of a young market that has a faster rate of expansion than an older one.
While Vietnam government bonds performing quite well, corporate bonds have seen a poor performance. Vietnam is among the only markets in Asia to experience flat or negative quarterly corporate bond sector growth rates. What are the main challenges for local corporate bonds this year?
We had seen a good volume of bond issuances in the past two or three years and that flow normally came from commercial banks, big real estate companies and big state-owned companies. However, in 2011 the corporate bonds tumbled because of some restrictions.
The change from loose to tightened monetary policies generally decreases the demand for the bonds. Legal infrastructure is not complete. For example, the Law on Credit Institutions issued in early 2011 as well as Decree 90/ND-CP do not have any circular to guide the issuance of corporate bonds. The rates of bonds issued by issuers who are commercial banks are restricted by the State Bank regulated ceiling rate.
In such a situation, how can Vietinbank, mining group Vinacomin and Vietcombank successfully issue bonds in the global market?
After Vincom’s successful issuance recently and good demand for Vietnamese corporate bonds in the global market, the probability of success for issuing corporate bonds is dependent on the ranking of issuers and the rate. In the time to come, if the government continuously uses the smoothly effective policies like it has done, we believe Vietinbank, Vinacomin, Vietcombank and other big institutions will be able to raise capital from the international market.