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Low offered interest rates make bond auctions unattractive
Recent government bond auctions have been unsuccessful because very few banks joined the auctions as they found the offered interest rates unattractive.
Between March 7 and 28, the Hanoi Securities Trading Centre (HASTC) organised three auctions of bonds issued by the State Treasury and the Bank for Investment and Development of Vietnam (BIDV). The three bond auctions, regrettably, were not successful.
On March 7, HASTC organised the auction of VND500bil worth of 15-year bonds, issued by BIDV. Only one institution joined the auction, which registered to buy VND25bil. However, the institution did not purchase the bonds as the seller and buyer did not agree on the interest rate. The institution registered the interest rate of 9.3% per annum, while the ceiling interest rate set by the Ministry of Finance was 8.8% per annum.
The March 14 bond auction, where VND1,000bil worth of bonds were invited for bids, also saw only one participant, who registered to buy VND400bil. The auction was also unsuccessful as the participant set the interest rate of 9% per annum for the 5-year term bonds, while the Ministry of Finance only accepted to pay 8.5%.
The latest bond auction, on March 28, where the State Treasury issued VND1,500bil worth of 5-year bonds, experienced failure, once again, as three participants set the interest rates of 8.9%-9.5%, while the ceiling interest rate set by the Ministry of Finance was 8.5%.
Nguyen Thi Hoang Lan, Deputy Director of HASTC, said that the main reason behind the failure of the bond auctions was the overly low ceiling interest rates set by the Ministry of Finance.
“The failure of the auctions was anticipated. However, HASTC still had to organise the auctions under the plan of the State Treasury,” Lan said, adding that the Ministry of Finance aims to set up the ceiling interest rates at low levels, so as to make commercial banks, whose interest rates are at high levels, adjust their interest rates to come closer to the benchmarks.
Moreover, according to Lan, as many investment projects carried out with capital from government bonds are very slow in disbursement, the Ministry of Finance does not want to mobilise capital at high interest rates and then leave money idle.
The third reason behind the failure was the underdevelopment of the bond market with limited liquidity. The long-term bonds (5-year or higher) prove to be unattractive to investors, especially foreign investors. Foreign investors’ capital mostly is short-term capital, which they do not use for 5-year investments. In fact, auctions of 2-3-year term bonds were previously very successful.
There are now 63 full members eligible to join bond auctions at HASTC. Besides nine foreign owned banks and investment funds, the other members are domestic banks, securities companies and insurers.
Currently, as commercial banks are lacking capital due to the policy on tightening monetary policies (they have to mobilise capital from the public at interest rates higher than the bond ceiling interest rates), and securities companies are facing difficulties due to the stock market’s falls, it is understandable why bond auctions are not attracting participants.
Analysts say that in order to arrange enough capital for investment projects, the Ministry of Finance must make bond auctions more attractive by reconsidering the ceiling interest rates.
Only by raising the ceiling interest rates to help sellers and buyers approach each other, can the bond auctions be successful, they say.
VNN
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