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All emerging East Asian bond markets, except Vietnam, expand in Q2
By Thanh Thom
Wednesday,  Sep 26, 2018,18:06 (GMT+7)

All emerging East Asian bond markets, except Vietnam, expand in Q2

By Thanh Thom

The cover picture of the latest Asia Bond Monitor. All emerging East Asian bond markets, except Vietnam, expanded in Q2 – PHOTO: ADB

HCMC – Vietnam’s local currency bond market was the only emerging East Asian market that contracted in the second quarter of this year, falling 1.4% quarter-on-quarter to roughly US$51 billion, following a 10.8% quarter-on-quarter rise in the first quarter, according to the latest quarterly update of the Asia Bond Monitor by the Asian Development Bank.

The latest issue of the Asia Bond Monitor, titled “Emerging East Asian Local Currency Bond Markets: A Regional Update,” reported that local currency bond markets in the region grew 3.2% from the first quarter of this year to a combined value of US$12.6 trillion in late June, with government bonds expanding 4% and corporate bonds rising 1.8%.

In Vietnam, local currency government bond yields climbed for all tenors, shifting the entire curve upward. Yields rose more at the shorter-end than the longer-end, causing the curve to flatten during the review period between June 1 and August 15.

The overall rise in yields was reflective of strong economic growth posted in the first half of the year. The economy, as measured by gross domestic product, expanded in the first half of the year by 7.1% year-on-year. Expectations that the State Bank of Vietnam, the central bank, would tighten liquidity also contributed to rising yields.

Consumer price inflation has trended upward since the start of the year, with upticks noted in most major sub-indexes. It climbed from 2.8% year-on-year in April to 3.9% year-on-year in May, further accelerating to 4.7% year-on-year in June before easing slightly to 4.5% year-on-year in July.

The central bank has engaged in open market operations to rein in inflation and stabilize the value of the Vietnamese dong. The dong depreciated 2.2% against the U.S. dollar during the review period, in line with the broad strengthening of the greenback against most emerging market currencies. Further dampening sentiments for the bond market were risks arising from trade tensions between China and the United States, two of Vietnam’s largest trading partners.

Drop in outstanding government bonds

The outstanding amount of government bonds slipped to US$46.9 billion in late June, falling 2.1% quarter-on-quarter but rising 12.2% year-on-year.

Treasury bills and bonds were the sole sources of growth, as central bank bills and government-guaranteed and municipal bonds posted declines during the review period.

In the second quarter, the issuance of treasury instruments slowed to over US$1 billion on double-digit declines on a quarter-on-quarter and year-on-year basis. Most auctions of treasury bonds fell short of the target amount, as investors sought higher yields.

The Government, however, was unwilling to accept higher borrowing costs to fulfill its funding requirements, due to the slow disbursement of investment capital.

In late July, the disbursement of capital by the Government amounted to US$5.7 billion, equal to only 35.6% of the target for the year. Of this amount, disbursement of capital from the issuance of government bonds amounted to over US$299,000, or only 17.6% of the target.

Rise in corporate bonds

In late June, the outstanding amount of corporate bonds in Vietnam climbed to VND77.3 trillion (US$3.3 billion) on growth of 10.6% quarter-on-quarter and 39.6% year-on-year.

The entire local currency corporate bond market comprised 41 corporate institutions, coming from a diverse set of industries. The majority of these issuers also tapped the equity market for their funding needs.

The 30 largest issuers of corporate bonds had cumulative bonds outstanding worth VND75.5 trillion, representing a 97.7% share of the total corporate bond stock in late June.

Masan Consumer Holdings led the list with outstanding bonds valued at VND11.1 trillion, accounting for nearly 15% of the total corporate bond stock. The second and third spots were real estate firm Vingroup (VND9.6 trillion) and State-owned lender Vietnam Joint Stock Commercial Bank for Industry and Trade, or VietinBank (VND8.2 trillion), respectively. Together, these three firms represented nearly 40% of the total corporate bond stock in late June.

In the second quarter, a total of eight firms issued new corporate debt, raising a total of VND8.5 trillion. The issuance of corporate bonds during the quarter rose more than fourfold from that of the first quarter, albeit coming from a low base.

Leading the list was State-owned VietinBank, which raised VND4 trillion from the sale of a 10-year bond in June. It was followed by Hoang Anh Gia Lai International Agriculture’s issuance of a VND2.2 trillion zero-coupon bond. Third on the list was Nam Long Investment’s sale of a 7-year bond worth VND660 billion in June. The three largest issuers of new corporate debt in the second quarter were all listed firms.

The Asia Bond Monitor reviews recent developments in East Asian local currency bond markets along with their outlooks, risks and policy options. It covers the 10 members of the Association of Southeast Asian Nations, plus China, Hong Kong (China) and South Korea.

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