In 2021, corporate bond yields were at their lowest level in history at just 7.86 per cent a year. The interest rate may have created a bottom and will support corporate bond yields inching up in 2022.
In a recent report, SSI Research said that last year, enterprises issued a total of VND722.7 trillion (US$31.6 billion) worth of bonds, up 56 per cent year-on-year. The net number of corporate bonds issued in 2021, excluding the amount of matured and called away bonds, was estimated at VND438 trillion, up 63 per cent.
The total amount of corporate bonds in circulation at the end of 2021 was estimated at about VND1,390 trillion, equivalent to an average growth rate of 46 per cent per year in the period from 2017 to 2021. The size of the corporate bond market increased sharply, from 4.93 per cent of GDP in 2017 to 16.6 per cent of GDP in 2021.
SSI said that this growth was in line with the capital market development orientation, reducing the dependence of enterprises on bank credit.
The average maturity of corporate bonds issued in 2021 decreased to 3.86 years from the average of 4.32 years in 2020. It was mainly because banking and real estate bonds have shorter maturity dates, down by 0.5 years and 0.3 years, respectively, to 4.2 years and 3.6 years.
The energy and minerals group also had shorter maturities, down by 0.86 years to an average of 6.4 years and remained the group with the longest maturity date.
According to the State Bank of Viet Nam, the banks’ lending interest rates declined by 82 basis points in 2021.
Thereby, the average nominal yields of corporate bonds will also decrease by 111 basis points (bps) to the same level of 7.86 per cent a year, the biggest decrease recorded in the fourth quarter of 2021.
Specifically, the average yields of bank bonds and non-bank corporate bonds issued in the fourth quarter of 2021 were 4.07 per cent per year and 9.43 per cent a year, respectively, down 61 bps and 73 bps compared to the third quarter of 2021, while deposit interest rates remained flat at a low level.
As corporate bond yields are at the lowest level in history, businesses increasing capital mobilisation from bond issuance is also understandable. Meanwhile, the difference of non-bank bond yields compared to deposit rates remained at 4 - 5 per cent a year, causing higher demand for corporate bonds. The rise in both supply and demand has helped the corporate bond market grow strongly.
In 2022, SSI Research assesses that the corporate bond market will still see positive developments as supply and demand remain at high levels. The deposit interest rate in 2022 may increase slightly by 20-25 bps, so the rate difference between corporate bonds and the deposit channel remains at an attractive level, while investment demand for corporate bonds is still high.
On the other hand, the number of corporate bonds maturing in 2022 is estimated at VND266 trillion, up 39 per cent compared to 2020 and accounting for about 19 per cent of the outstanding corporate bonds.
The demand for issuance to ensure capital turnover of enterprises is quite high. In addition, production and business activities are expected to be more active than in 2021 as the economy is reopening after the pandemic. Therefore, the supply of corporate bonds is expected to be very abundant. — VNS