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The game of bonds
Low interest rates for bonds have hindered the issuance of government bonds.
Bond bids in February fail
No successful bond tender on the Hanoi bourse was reported in February 2009. The Bank for Social Policies on February 25 offered to sell VND2tril worth of government bonds at the ceiling interest rate of 7% per annum. However, the deal failed as buyers registered the interest rate of 8.1% at the highest.
Meanwhile, the interest rate institutions registered for the government bonds issued by the State Treasury one day was even higher, at 8.45% per annum. The ceiling interest rate at 7%, equal to the currently applied basic interest rate, has hindered the bond issuance as it is not being accepted by clients.
On the secondary market, 10-15-year government bonds are being transacted with the bond yield of 8.8% per annum, while it is 8.2-8.5% per annum for less than five year bonds.
The bond market has become quieter compared to the end of last year. Figures released by the Hanoi Securities Trading Centre (HASTC) show that the total bond transaction volume in December 2008 was VND41,070bil, while it dropped to VND13,334bil in January 2009 and VND12,012bil in February. Foreign investors continue selling more bonds more than they purchase.
There have been changes in the structure of buyers and sellers. Previously, local banks were the biggest buyers. However, in the last 10 days of February 2009, some commercial banks also sold bonds, especially state-owned credit institutions. As the disbursement for the interest rate subsidy programme has been going quickly, some state-owned banks have shown signs of temporarily having low liquidity.
Of the total amount of VND80tril disbursed in the two last weeks of February 2009 under the interest rate subsidy programme, joint-stock banks have only given small loans. Big joint-stock banks like Techcombank, ACB, Sacombank and Eximbank have disbursed less than VND1tril each, while smaller ones have only provided VND200bil-300bil each.
In order to help banks improve liquidity, the State Bank has made timely intervention by keeping the basic interest rate the same, while slashing the compulsory reserve rate to help increase the VND supply.
Analysts believe that in the time to come, if the disbursement rate remains at a high level, state-owned banks are likely to continue selling bonds.
Bond ceiling interest rate will be higher than basic interest rate?
Currently, on the interbank market, the VND interest rates for all less-than-12-month term loans have been increasing by 0.5-1% per annum. A lot of institutions have predicted interest rates will continue to increase, and bond yield, therefore, would also increase.
The government has proposed that the National Assembly allow it to issue VND11,500bil more, raising the total bond volume to be issued in 2009 to VND55tril, or $3.1bil. However, it is not easy to mobilise such a big amount of capital, especially in the current period, if the Ministry of Finance does not apply a flexible policy on bond interest rates.
What would happen if the Ministry of Finance raised the bond ceiling interest rate to a level higher than the basic interest rate? Financiers believe that the basic interest rate in Q2 2009 will not stay the same.
Last year, government bonds brought big profit to many institutions. Of the total VND2,556bil worth of pretax profit in 2008 of ACB, the profit from bonds was over VND1tril. SSI last year got the post-tax profit of VND252bil, the highest level among securities companies, partially because of investments in bonds.
VietNamNet, TBKTSG
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