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Bond market warming up on optimism about macroeconomic stability
As the stock market has shown signs of an encouraging recovery, the bond market has also bounced back.
Recently, foreign institutions tried to sell government bonds at low prices. But now, they are trying to buy back the bonds as they believe in the imminent recovery of the national economy.
Good news
The latest government bond bid took place late last week, on August 8. It proved to be a lucky session, with 100% of 2-year bonds sold, and 10% of VND55bil worth of 5-year bonds taken. This proved to be the most satisfactory bond auction in the last five months in the context of the warmed-up stock market and good news about macroeconomic stability.
According to the Hanoi Securities Trading Centre, six institutions joined the 2-year bond auction, and registered to buy VND1,270bil worth of bonds, or double the volume called for bid. The highest registered interest rate was 19% per annum, while the lowest was 17%. The ceiling interest rate set by the Ministry of Finance was 17.5% per annum.
Meanwhile, 13 institutions joined the 5-year bond auction, and registered to take VND1,465bil worth of bonds, or triple the volume called for bid. The highest registered interest rate was 19% per annum, while the lowest was 15% per annum. The ceiling interest rate set by the Ministry of Finance was 16% per annum.
Though not all the 5-year bonds were sold, this was still considered a satisfactory result, if noting that bond auctions were very quiet for a long time. The successful auctions on August 8 helped raise the volume of mobilised capital with 2-year bonds to VND1,202bil.
There were big changes in the interest rates of bonds. At the auction on July 31, bidders set the interest rate of 22% for 5-year bonds, while at the latest auction, the rate decreased to 19%. The lower interest rate reflects the viewpoint of institutions about the tendency of the basic interest rate as well as their optimism about the national economy’s performance.
In June 2008, the interest rates required by bidders increased sharply all the time, hitting 21.3% and 20.5% for 2-year and 5-year bonds, respectively, much higher than the interest rate for 10-year bonds.
Higher interest rates for shorter-term bonds are really a paradox of the bond market in Vietnam.
Macroeconomic stability
However, the paradox has been correcting itself step by step with the interest rates of short-term bonds decreasing considerably. According to ACB Securities Company, on August 11, the 2-year bond interest rate dropped to 17.83%, while the rate for 5-year bonds fell to 17.11%. The rates represented sharp declines from early August, when they were 18.81% and 18.08%, respectively.
The bond secondary market has shown positive changes. Two months ago, bonds were sold in big quantities as a result of the high inflation rate, high interest rates, exchange rates and the crisis in the monetary market. The net sale by foreign investors once raised concerns about the capital withdrawal of foreign investors from Vietnam’s market. However, in the trading sessions in early August, foreign investors began purchasing more bonds, especially short-term ones, thus making the bond market warm up.
According to the Hanoi Securities Trading Centre, the average net sale of eight trading sessions in August decreased to VND108.27bil/sesson, while the figure in the time between mid June and the end of July was VND245.46bil/session.
The bond interest rates in transactions have been decreasing gradually since early August, especially in short-term bonds. The performance in the bond market proves to come in accordance with the happenings in the monetary market and macroeconomic performance.
Bank interest rates have been slightly decreasing, while the CPI increase in July decreased sharply. The inflation rate is expected to be within the predicted level (25%), while gold and dollar prices have slid to the levels of early 2008, and the world’s oil price has dropped to $113/barrel.
Experts say that the government bond market is very sensitive to the economic policies pursued by the government. The market once bore bad influences from the monetary market, and now, when everything is getting better, the government bond market is also bouncing back.
VNN
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