Monday,  Dec 10, 2018,03:27 (GMT+7) 0 0
Vietnam sees downward shifts in yield curve: ADB
By Thanh Thom
Tuesday,  Nov 20, 2018,19:01 (GMT+7)

Vietnam sees downward shifts in yield curve: ADB

By Thanh Thom

Government bonds in Vietnam are largely held by commercial banks, which is reflective of their capacity to transact in larger volumes – PHOTO: TL

HCMC – Local currency (LCY) government bond yields in Vietnam have dipped for all tenors between August 31 and October 15, resulting in a downward shift of the yield curve, the Asian Development Bank stated in its latest Asia Bond Monitor issue, released on November 20.

The quarterly issue, titled “Emerging East Asian Local Currency Bond Markets: A Regional Update,” reported that Vietnam’s yields fell an average of 21 basis points (bps) for the two-year through 10-year maturities, while yields at the very short-end (one year) and the very long-end (15 years) of the curve shed nine bps and six bps, respectively.

The spread between the two-year and 10-year maturities widened to 89 bps on October 15 from 82 bps on August 31. The decline in interbank rates drove yields lower during the review period, and liquidity conditions in the banking system improved in September.

The State Bank of Vietnam is expected to keep interest rates steady for the rest of the year to support economic growth and has opted to use other monetary tools to curb inflation.

The central bank has been engaging in open-market operations to manage liquidity and intervening in the foreign-exchange market to stabilize the exchange rate between the Vietnamese dong and the U.S. dollar. During the review period, the value of the dong versus the dollar changed little, falling a marginal 0.2%.

Unlike other bond markets in emerging East Asia, Vietnam’s debt market is not sensitive to the normalization of the monetary policy in the United States, because bonds are largely held by domestic investors, particularly commercial banks.

However, Vietnam’s LCY bond market has been impacted indirectly by the U.S. dollar strengthening vis-à-vis most regional currencies.

Market participants in the AsianBondsOnline 2018 Liquidity Survey noted that market conditions were more affected by trade tensions between the United States and China, partly because these two markets are among their largest trading partners. Concerns that the United States may impose trade sanctions on Vietnam also surfaced.

Survey respondents also opined that the trade rift would translate into some economic gains if a few manufacturers in China were to move production to Vietnam. However, these developments would still take time to materialize.

The size of Vietnam’s bond market climbed to VND1,232.4 trillion (roughly US$53 billion) at the end of September, up 5% quarter-on-quarter and 15.7% year-on-year. Vietnam’s growth rates were the third-fastest in emerging East Asia on a quarter-on-quarter basis and the fastest on a year-on-year basis, albeit coming from a low base.

Government bonds

At the end of September, the aggregate size of the LCY government bond market reached VND1,152.8 trillion (US$49.4 billion) on growth of 5.2% quarter-on-quarter and 14.7% year-on-year, largely driven by increases in the stock of Treasury bonds issued by the State Treasury.

To a lesser extent, central bank bills issued by the SBV also contributed to the growth. The stocks of government-guaranteed and municipal bonds were broadly unchanged during the review period.

Treasury bonds continued to account for the largest share of government bonds in Vietnam, representing a 77.8% share of the government bond total at the end of September.

The total stock of Treasury bonds reached VND896.7 trillion at the end of September, up 4.6% quarter-on-quarter and 12.5% year-on-year. During the quarter, the issuance of new Treasury instruments climbed on both a quarter-on-quarter and year-on-year basis.

At the end of September, the outstanding size of central bank bills rose to VND75 trillion on growth of 28.4% quarter-on-quarter and 257.2% year-on-year.

Corporate bonds

The outstanding value of LCY corporate bonds rose to VND79.5 trillion (US$3.4 billion) at the end of September, posting a 2.9% quarter-on-quarter expansion in the third quarter. On a year-on-year basis, the corporate bond market grew at a much faster pace of 31.6% year-on-year in the third quarter of this year.

Based on data compiled from Bloomberg, the entire LCY corporate bond market of Vietnam comprises 41 institutions. Some 90% of corporate bonds in Vietnam are issued through private placement, making it difficult to compile information on these issues.

At the end of September, the 30 largest corporate bond issuers had an aggregate bond size of VND77.5 trillion. This accounted for 97.5% of the total corporate bond stock during the review period.

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