Vietnam’s bond market registered growth of 5.0% quarterly and 15.7% yearly to US$53.0 billion as of the end-September, according to the latest edition of the Asian Development Bank’s (ADB) Asia Bond Monitor.
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Additionally, the corporate bond market expanded 2.9% on quarter and 31.6% on year to US$3.0 billion.
Unlike most other emerging East Asia bond markets, Vietnam’s third quarter bond yields retreated in line with lower interbank rates and improved liquidity among banks in September. The State Bank of Vietnam (SBV) is expected to keep interest rates steady for the rest of the year to support economic growth and uses other monetary tools to curb inflation, the ADB said.
Vietnam’s debt market, unlike other emerging East Asia bond markets, is not sensitive to US monetary policy tightening as bonds are largely held by domestic investors, particularly commercial banks. However, Vietnam’s bond market has been indirectly affected by the US dollar strengthening vis-à-vis most regional currencies.
Market participants in the AsianBondsOnline 2018 Liquidity Survey noted that market conditions were more affected by trade tensions between the US and China, partly because these two markets are among their largest trading partners.
According to the ADB, short-term risks continue to cast a shadow over emerging East Asia’s local currency bond markets. However, they should be able to weather the challenges so long as the region’s policymakers remain vigilant.
Short-term risks include general risk aversion toward emerging markets, faster-than-expected hikes in US interest rates, and escalating global trade tensions. Tightening liquidity conditions exacerbate the risk from the region’s rapid growth of private debt in recent years. Depreciation of regional currencies and capital outflows pose further risks to the region’s financial stability.
“Concerns about emerging markets are looming, but ultimately Asia’s strong fundamentals should attract investors back to the region’s local currency bond markets,” said ADB Chief Economist Yasuyuki Sawada. “That said, the region’s policymakers must closely monitor developments and keep up their guard against potential shocks.”
The report showed emerging East Asia’s bond market expanded 4.3% in the third quarter versus the second quarter to stand at $12.8 trillion at the end of September. The growth rate was faster than the 3.2% pace seen in the second quarter.
The third quarter growth came largely on the back of strong issuance of bonds in China, notably bonds issued by local governments for infrastructure projects. As of the end of September, China had the largest bond market in emerging East Asia with US$9.2 trillion of bonds outstanding, 72% of the regional total, and 5.7% more than at the end of June.
