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Thursday, July 18, 2024

Vietnam’s G-bond yield curves shift downward sharply: ADB

By Dat Thanh

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HCMC – The government bond yields in Vietnam have dropped across all tenors from March to June, resulting in the largest downward shift in the country’s bond yield curve among Asian nations, with an average decline of 136 basis points.

According to the Asian Development Bank (ADB) report titled “Asia Bond Monitor” published on June 21, the drop resulted from the State Bank of Vietnam’s monetary policy loosening in response to the economic challenges and to support financial stability, especially in the real estate market.

The central bank cut the discount rate by 100 basis points, from 4.5% to 3.5% per year, on March 15, and lowered key interest rates by 50 basis points each on April 3, May 25, and June 19, bringing the policy rates to 5%.

Vietnam’s bond market expanded by 5.1% quarter-on-quarter by the end of March, with outstanding bonds amounting to VND2,626 trillion (US$111.9 billion).

The bond market in Vietnam remained dominated by Treasury and other government bonds, accounting for a combined 67.8% of the total outstanding bonds. Corporate bonds made up 28.0%, while central bank securities accounted for 4.2%.

This growth was fueled by increased government and corporate bond offerings during the quarter. The Government’s relaxation of certain regulations contributed to the rebound of bond issuance. Bond issues surged by 73.0% quarter-on-quarter in Q1 2023, reaching VND938.4 trillion. Treasury and other government bonds accounted for VND121.4 trillion of the total, growing 15.9% from the previous quarter and representing 12.9% of the total bond issues in the quarter.

Corporate bonds skyrocketed by 639.3% quarter-on-quarter in Q1 2023, driven by activity in the corporate bond market following the introduction of Decree 08/2023 in March. This decree enables debt-issuing organizations to renegotiate bond terms and conditions with bondholders, particularly the maturity date.

The property sector accounted for 85.3% of the corporate bonds issued in Q1, with seven firms in the sector contributing the most.

The report also highlighted defaults in Vietnam’s corporate bond markets, particularly in the real estate sector, which saw Vietnam’s real estate equity index drop by more than half.

According to a report released by FiinRatings in April, defaulted corporate bonds totaled VND94.4 trillion, involving 69 companies as of March 17. The real estate sector accounted for the highest share of defaults, with 83.6% (VND78.9 trillion). As of May 4, the defaulted bonds had increased to a total of VND128.5 trillion.

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