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Foreign investors holding bonds for now
Decreasing market interest rates will make bond yield decrease, while there is an unfavourable exchange rate. Both factors will keep bonds in foreign investors' hands in the time to come, experts say.
In fact, bond transactions have become less bustling in the last week.
A month ago, domestic financial institutions and banks were purchasing a lot of bonds from foreign investors, who were involved in 70-80% of total sales. Because of the demand, foreign investors increased the prices of bonds.
However, the yield of government bonds which mature in one or two years has decreased by 2% per annum due to the higher bond prices, from 16.5%-17% to 14.5-15% per annum. The bond yield proves to be not attractive enough for commercial banks, which explains why they have been purchasing less.
The bond yield is calculated by the ratio of the annual profit bond holders receive during the time they hold the bonds and the bond price. This means that the bond yield will decrease when the bond price increases, and vice versa.
“Recently we have purchased up to one thousand billion VND worth of bonds. The total value of bonds we are holding has reached some VND7-8,000bil. We will only purchase more bonds if the bond yield is really attractive,” the director of a bank said.
However, analysts have forecast that the bond yield will further decrease in the time to come as the interest rates on the market are on the decrease as the State Bank has released several decisions aiming to loosen monetary policies.
Foreign investors will lose money when converting VND into dollars as the VND/US$ exchange rate has risen sharply in the last week. On the black market, the exchange rate the other day hit the VND17,000/US$1 threshold. This is one of the reasons that foreign investors will hesitate to sell bonds.
Analysts say that overall, the volume of bonds held by foreign investors has decreased sharply since the massive sales in May-June 2008 and September-October 2008.
A foreign banker estimated that the volume of bonds foreign investors held earlier this year was approximately $4.5-5bil, while the figure is just $2bil now.
The bonds offered for sale by foreign investors were eagerly snapped up by domestic commercial banks. The purchases were so big that the State Bank of Vietnam warned some banks about the purchases when the banks asked to borrow money from the central bank to purchase bonds. At that time, the bond yield was as high as 24-25% per annum.
The foreign currency market has been stable with increased foreign currency reserves. Meanwhile, supply is profuse as banks have withdrawn money from overseas banks.
VNN
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