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Government bond market in 2013: high demand, high supply
Government bonds have been selling well since the beginning of the year. This remains a favorite investment channel for big institutions and foreign investors in 2013.
In principle, when the supply gets profuse, the goods prices would reduce, while buyers may shrink back and cancel their purchase plans. However, this does not happen with the government bond market.
Demand would be high
The investors’ worry that the government may set limitations on the amounts of bonds to be issued in 2012 has been lifted. The State Treasury has announced that it may issue VND150 trillion worth of bonds this year, which is higher than the last year.
Dr. Le Xuan Nghia, a Member of the National Advisory Council for Monetary Policies, has also reassured the investors that no need to worry about the volume of shares to be issued in 2013.
In 2012, the State Treasury issued VND141.3 trillion worth of bonds, while the limit was VND60 trillion, not including the money used to offset the 2011’s budget deficit.
If noting that the government needs VND90 trillion to cover the budget deficit this year, estimated at 4.8 percent, one would see that the bond volume would not be a small figure.
This seems to be anticipated by commercial banks which do not worry that they may have no goods to buy.
VinaWealth fund management company, the first open-end fund set up in Vietnam, the limitation on the credit growth rate in 2012 has led to a higher demand for bonds as the alternative investment channels.
It is expected that 2.8 billion dollars worth of government bonds and government-guaranteed bonds became matured in 2012. This means that a huge sum of capital is now ready to be injected in investment channels, and it’s very likely that the investors would use the money to buy bonds again.
Economists believe that buying bonds would be a good choice for commercial banks in 2013. The current conditions and the economic scenarios do not show that banks would be able to push up lending. Therefore, government bonds remain a profitable and safe investment channel.
However, the economists think that commercial banks are likely to reduce the bond purchases in the second and third quarters when they have gather strength on dealing with the bad debt settlement.
In other words, if the credit growth and the bad debt settlement go slowly like it did in 2012, commercial banks would put more money into bonds, which would make the bond market bustling.
The other players in the playing fields
Though believing that commercial banks would still be the main players in the government bond market, economists say more players would appear on the secondary market.
The investors’ transaction value reportedly amounted to 26 percent of the total trading value in the secondary market in the first two months of the year. Foreign investors not only shown their interests in short term 1-3 year bonds, but in long term 5-year bonds as well with the net purchase volume in January reaching VND2.1 trillion, the 3-year high since September 2011.
The positive forecasts about the Vietnam’s economy in 2013 and the reasonable interest rates, inflation and exchange rate policies all have prompted foreign investors to buy dong bonds. They bought VND86 million worth of bonds in January, the highest level since 2007.
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