Plan is ready to raise market’s bond liquidity

23:15 | 05/12/2010

The Ministry of Finance is planning to buy back T-Bonds to create higher bond market liquidity.

Deputy Minister of Finance Tran Xuan Ha told the Vietnam Business Forum (VBF) last week that the MoF was composing a plan for increasing the bond market’s liquidity by restructuring issued bond volumes.

According to the Hanoi Stock Exchange, total bonds valued at VND219 trillion ($11.5 billion) were being traded on the exchange. Of these, 51 per cent of the total bond volume would go to maturity in the next two years, including bonds valued at VND64.4 trillion ($3.3 billion) that would mature in 2011 and bonds valued at VND47.8 trillion ($2.5 billion) for 2012. The government, meanwhile, had to pay an estimated VND70 trillion ($3.6 billion) for matured bonds and interest rate payments in 2010.

However, bond transactions in the market have faded in recent months. Of which, buyers and sellers have not found each other for transactions of bonds with maturities of five or less years. The bonds transactions with a maturity of 10 years have limited values, with only few billion Vietnamese dong a day. 

Dominic Scriven, chief executive officer of Dragon Capital and representative of the VBF’s Capital Markets Working Group, said the country’s bond market was still modest in size and had low liquidity.

“Vietnam’s credit default swap (CDS), which measures how the interest of foreign investors in T-Bonds, keeps increasing. Vietnam’s T-Bonds have higher risks than the T-Bonds of countries like Thailand, Indonesia or the Philippines and the risks are now equal to the levels in the second quarter of 2008,” said Scriven.

The group supposed that creating benchmark bonds with large outstanding and high liquidity would help improve the size and liquidity of the bond market, the development of credit rating agencies and the expansion of the T-Bond market investor base. The group also proposed tax reductions in bond investments such as 10 per cent coupon tax, 10bps tax on repo transactions and income tax on swaps.

“We believe that a more stable macrofinance status next year will benefit the bond market,” he added.

Vietnam’s high inflation rate will hinder local investors from succeeding in bond bidding in the last two months of this year. Besides, foreign exchange volatility is also preventing foreign investors from pouring money into local currency bonds.

Edward Lee Wee Kok, Standard Chartered Bank’s regional head of rates strategy in Asia, said the trade volume of local currency bonds in Vietnam, following the dong’s devaluation, was less than other regional nations.

The dong has depreciated 5.3 per cent against the US dollar since the beginning of this year and government bond coupon rates must be around 10 per cent to cover the cost of investment. However, coupon rates of Vietnamese government bonds are less than 10 per cent of the short-term maturity bond, which was mostly traded by foreign institutions.

Vietnam’s inflation was nearly 10 per cent by the end of November against the end of last year, higher than the state’s whole-year target of 8 per cent.

Song May

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