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The bond ‘test’ finishes
There has been a sudden shift in the bond market: After a series of unsuccessful bond bids, the latest bond issuance succeeded thanks to reasonable interest rates.
On June 24, 1,500 billion dong out of 2,000 billion dong worth of two-year bonds issued by the Bank of Social Policies were sold in the bond bidding. The two institutions which joined the bids purchased the bonds at the rate of interest at 9 percent per annum.
In the last four months, 13 Government bond bids in VND failed or were not as successful as expected with limited volumes of bonds sold. The interest rates of the bonds being lower than the interest rates on the secondary market made institutions turn their backs.
“The last four months tested the patience of issuing institutions. The test has finished with the fact that issuance institutions have accepted raising the bidding rates of interest,” said director of a state-owned commercial bank.
This was the first time in many months that the rate of interest on 2-year bonds was raised to the 9 percent per annum threshold (it was 8.7 percent per annum at maximum previously). The 9 percent per annum level is now equal to the rates at which Government bonds are being traded on the secondary market. A question has been raised about why the institutions joined the bids if they could purchase the same bonds on the secondary market at the same price.
The answer is that on the secondary market, where investors trade issued bonds, it is not easy to purchase big lots of bonds worth several hundred billion dong. If institutions want to purchase bonds in big quantity, this may have big impacts on the market and push bond prices up, which means that bond yield will decrease. Meanwhile, by joining bids, institutions can purchase bonds in big lots while they do not bear the risks of price fluctuations.
It is clear that raising the interest rates of bonds is the only way to attract institutions to Government bonds. It seems that the task of issuing 55 trillion dong worth of bonds in 2009 has caused pressure, forcing issuers to accept higher rates of interest.
The Vietnam Development Bank (VDB) is expected to issue 500 billion dong worth of 2-year bonds and 500 billion dong worth of 10-year bonds in some days. Sources say that VDB will offer reasonable rates of interest to ensure the success of the issuance.
With 1,500 billion dong worth of bonds sold on June 24, the total volume of issued bonds has reached 7,500 billion dong so far. However, the volume proves to be small compared to the targeted volume of 55 trillion dong.
However, analysts believe that if issuers set reasonable interest rates, the Government will still be able to fulfill the bond issuance target. The Hong Kong and Shanghai Banking Corporation (HSBC) earlier this year predicted that the Government of Vietnam would issue bonds on the international market this year.
Prior to that, the Ministry of Finance announced that it will have to reconsider the plan on bond issuance after a series of failed bond bids recently.
Deputy Minister of Finance Tran Van Hieu said that the ministry will take necessary measures to fulfill the bond issuance plan set for 2009.
VietNamNet, DTCK
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