Lower bond yield helps boost credit

Friday, Apr 19, 2013 09:00

HA NOI – The rates of return received from investing in government bonds (G-bonds) declined in the past two months. However, market insiders believe this will help boost credit growth.

The G-bond interest rates have declined dramatically on the secondary market in the past three months, but slowed down on several terms in April.

In the first half of this month, the interest rate on three-year bonds fell just 10 basic points, from 7.9 per cent on April 3 to 7.8 per cent on April 16.

Although the rate of two-year bonds dropped by a more substantial 40 basic points during the period, interest rates of the one-year, five-year and 10-year bonds were unchanged due to the lack of transactions.

Demand for G-bonds on the primary market also fell. The State Treasury last week raised just VND4.11 trillion (US$195.7 million) out of total VND7 trillion ($333.3 million), a strong decline compared to the success in selling all bonds in previous sessions.

According to market insiders, bond yields have reduced continuously since the State Bank of Viet Nam cut down the benchmark interest rate to 7.5 per cent per annum.

"The bond yield still declined, but the speed slowed, primarily because the yield is approaching the expected annual inflation rate for this year," Trinh Quang Dung, analyst of Vietcombank Securities Co was quoted as saying in the newspaper Dau tu chung khoan (Securities Investment).

On the other hand, credit expansion showed sign of rising again, which helped reduce the bond interest rate, Dung said, noting credit growth in March increased 0.1 per cent after two consecutive months of declines (1.23 per cent in January and 0.28 per cent in February). According to a bank executive, banks will not pour much money in G-bonds as in the past given the strong reduction. — VNS

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