vietnamnet bridge – the long-bustling bond market unexpectedly cooled in the last two weeks, partly due to weak liquidity faced by several banks.

A report showed that only VND8.7 trillion worth of bonds and VND200 billion worth of guaranteed bonds were successfully issued, which meant that only 54 percent and 12.5 percent of the bonds offered, respectively, were sold.

The figures represented a sharp fall in comparison with April.

A banker said that banks had offered lower interest rates in the bond market in the first half of May compared to the first quarter of 2014 because of weaker liquidity, while bond yields remained at low levels.

He said the bond yields had not seen big changes recently, hovering around 5.6-6.1 percent for two- or three-year bonds and 7.1 percent for five-year bonds.

In fact, banks’ falling interest in bonds was even noticeable in April, when VND13.237 trillion worth of bonds was successfully issued, down by 62 percent from the month before and 17 percent lower than the same period last year.

The State Treasury could sell 94.3 percent of bonds it offered, while the Bank for Social Purposes could sell 5.7 percent. No bid was organized by the Vietnam Development Bank.

A senior executive of Vietcombank said commercial banks had already injected a great deal of money into bonds, and now they will consider their liquidity situation and credit growth to decide if they should continue buying bonds.

Bonds are not attractive to those who live on bond trading because the winning prices for bids are low.

When asked about market prospects, the senior executive said the supply would not be superfluous in the future.

“The volume of bonds issued in the first quarter of the year was higher than planned. Therefore, the issuers will not be under hard pressure when implementing their bond issuance plans in the time to come,” he said.

“Though 76 percent of the plan needs to be fulfilled in the next two months, we believe that the State Treasury will not try to reach that goal at any cost. Maintaining bond interest rates at low levels is still the government’s top priority,” he continued. “It is more important to fulfill the yearly rather than the quarterly plan”.

In general, bond demand still heavily depends on banks’ credit growth. Demand will be weak if banks increase lending. Meanwhile, banks will continue injecting money into bonds if they cannot find borrowers.

While government bonds are not really attractive to banks, Treasury bills have been selling like hot cakes. A report showed VND4 trillion worth of bills was successfully issued in April, a sharp increase of 100 percent over the same period last year.

Government bonds are defined as long-term (two years or more) securities, while Treasury bonds are short-term (less than one year) securities.

This is not a surprise to anyone. In Vietnam, short-term securities and deposits are still more preferable than long-term ones because Vietnamese investors cannot predict market performance until several years have passed.

Lao Dong