Despite rising participation from investors in recent Government bond (G-bond) auctions, the G-bond market has slowed due to a widening gap in interest rate expectations between investors and the issuers.

The State Treasury of Viet Nam has raised VND57.64 trillion (US$2.53 billion) worth of G-bonds since May 25, equivalent of just 21 per cent of its yearly target of VND275.97 trillion set by the Ministry of Finance for the whole of 2018.

This value also represents a decrease of 40.6 per cent compared to the same period of last year.

Data of the Ha Noi Stock Exchange, where the G-bond auctions were organised, revealed that the number of tender offers increased with the bidding volume being nearly three times higher than the offering volume.

According to Nguyen Thi Kim Oanh, chairwoman of the Viet Nam Bond Market Association (VBMA), the G-bond market is in a stable situation. A higher volume of bids over offer shows high demand from investors.

“The key issue is the difference in interest rate expectations between investors and issuers,” Oanh said.

She attributed the low success rate of recent auctions to a large gap in bonds’ yields between primary and secondary markets which made investors (mainly commercial banks) hesitant to invest in G-bonds.

Meanwhile, the State Treasury was not under pressure to issue at all costs and wanted to maintain low interest rates due to the slow disbursement of capital raised from G-bond sales.

In the first four months of this year, investment capital from the State budget (including G-bonds) was estimated to be VND65 trillion, equivalent to 16.3 per cent of the National Assembly’s plan. The slow pace of disbursement has put the State budget in a surplus of around VND11.3 trillion, the Ministry of Finance’s data showed.

Therefore, if the disbursement of public investment capital does not improve in the coming time, results of the upcoming G-bond auctions may still fail to meet expectations, according to Oanh.

In reality, the success rate of auctions from mid-April to the end of May showed a decrease despite a slight increase in interest rates.

The sell rate of five-year bonds fell from 50 per cent on May 16’s auction to 22 per cent on the May 23 auction. The sell rate for 10-year bonds also decreased from 65 per cent to 35 per cent and for 15-year bonds, it was down from 49 per cent to 35 per cent.

Meanwhile, the interest rate of 10-year and 15-year bonds in the latest auction on May 23 rose by 0.03 percentage points and 0.02 percentage points, repectively, from the previous auction.

According to Nguyen Thi Hoang Lan, deputy general director of the Ha Noi Stock Exchange, interest rates have gnerally increased from April but the rate of the rise was much lower compared to the reduction in the first quarter.

Overall liquidity of the G-bond market from the beginning of the year has been stable, with the average trading value by session ranging between VND10 trillion and VND11 trillion. — VNS