It is highly possible that the State Treasury of Vietnam (VST) could miss the yearly target of mobilizing VND260 trillion (US$11.2 billion) via government bond auctions in 2019, according to Viet Dragon Securities Company (VDSC).
The VST mobilized VND52.6 trillion (US$2.26 billion) via government bond sales in the third quarter this year, equivalent to 70% of the quarterly plan and down 2.5% year-on-year.
In the first nine months of 2019, the VST raised only VND155 trillion (US$6.68 billion) through a similar process, completing 59% of the yearly plan but the winning/offering ratio rose to 80% from 50%.
According to VDSC, bond yields have been on the decline since May and recorded a big drop in September after a policy rate cut of the State Bank of Vietnam (SBV). Primary yields decreased by 15-30 basis points (bps) while five-year bond yield plunged from 3.8% annually to 3.1%.
The report suggested the VST has intentionally reduced the offering amount in recent months.
Although the winning/offering ratio is higher than last year, the raised amount is still low. In the context of slow public investment disbursement, there is no tremendous pressure put on VST to achieve the plan. In a low inflation environment, such decrease in offering amount not only softens upside risks for bond yields but also reduces the concerns about crowding-out effect due to a gradual slip of money supply. Up to September 2019, total money supply grew at 8.4% year-to-date, below the 8.7% during the same period in 2018.
The secondary market was more active as total trading surged by 33% year-on-year. Foreign investors net bought US$180 million in the quarter, compared with a similar net-sold amount last year. In the January – September period, foreigners poured US$600 million into Vietnam’s government bond market in contrast to net selling of US$105 million recorded in the same period last year.
VDSC’s report said government bond yields are approaching the bottom seen at the beginning of 2018. However, the current situation is more stable and sustainable as the gap between US-Vietnam 2-year government bond yields is around 1% instead of 0% in the second quarter of 2018.
Country risk premium, the gap between US-Vietnam 10-year government bond, has recovered and moved around 2%. That is higher than Thailand’s (-0.1%), Malaysia’s (1.7%), China (1.6%) but lower than Indonesia (5.1%). The gap between Vietnam 10-year- and 2-year government bond yields has also gone up in recent months.
