The government bond auction was fairly sluggish in the first half of the year (H1), particularly in the second quarter (Q2). The monthly offer volume continuously declined, reaching only 12.750 trillion dong in June and 48.250 trillion dong in the second quarter (Q2), equivalent to about 60 percent of the quarterly plan (80 trillion dong). However, statistics of Hanoi Stock Exchange (HNX) showed that in Q2, the winning volume was only 35.644 trillion dong, equivalent to a winning rate of just about 73.9 percent.
Overall, in the first half of the year (H1), the State Treasury only mobilised 105.112 trillion dong of government bonds via auctioning on HNX, which is only 68.5 percent of the issuance plan in H1 and 40.4 percent of this year’s plan. The average winning rate of the sessions in this period was only 75.5 percent.
Nevertheless, the government bond auctions have rebounded in July. From the beginning of July until now, the State Treasury held three bonds auctions with a total offer volume of 20 trillion dong, equivalent to 40 percent of the total offer volume in the entire Q2. The winning volume reached up to 18.740 trillion dong, equivalent to a winning rate of 93.7 percent.
Notably, in the auction on July 17th 2019, the State Treasury successfully mobilised all of the offered bonds worth eight trillion dong, including 2.5 trillion dong of additional issuance. The five-year government bonds, which recorded fairly gloomy trading in Q2, were sold out this time.
Another signal showing the gradually returning attractiveness of government bonds is the strong increase in the registered volume, while the winning bond yields significantly plummeted.
If the average registered volume in the auctions in Q2 was only about three times larger than the offer volume (148.697 trillion dong compared to 48.250 trillion dong), this ratio increased to four times in July (81.174 trillion dong compared to 20 trillion dong).
Meanwhile, the winning yield of five-year bonds has currently dropped to 3.65 percent per annum, down by 0.05 percentage point compared to the beginning of Q2; while the 10-year bond yield has fallen to 4.51 percent per annum, down by 0.11 percentage point; the 15-year bond yield has declined to 4.76 percent, down by 0.18 percentage point; and 20-year bond yield has fallen to 5.15 percent per annum, down by 0.27 percent percentage point, etc.
Abundant liquidity
A financial expert said that the attractiveness of government bonds returned in July is thanks to banks’ purchase acceleration for some reasons. Firstly, banks’ liquidity is fairly abundant thanks to the supply from the State Bank of Vietnam (SBV) and the controlled credit limit.
Accordingly, with the purchase of at least 8.35 billion US dollars in the first months of the year, the SBV has injected nearly 195 trillion dong into the banking system. Meanwhile, statistics showed that the agency has only withdrawn just above 105 trillion dong from the beginning of the year, which means that nearly 90 trillion dong still remain in the system.
In addition, although the SBV tightens the credit growth target this year at 14 percentthe lowest in the past five years, many banks have nearly used up their assigned credit growth limits. Some banks will have “nothing to do with lending” if the SBV does not loosen the credit growth limit. “In such context, pouring capital into bonds is perhaps a smart choice when the interbank market is also seeing abundant supply,” said the expert.
Secondly, the volume of government bonds matured in the early months of the year was also very huge. According to the ministry of Finance, by June 21st, the amount of principal repayment was 98.995 trillion dong, thus, the net mobilisation of government bonds (excluding the principal repayment) from the beginning of the year until June 21st was only 3.678 trillion dong. “The large matured bond value is also the reason that banks have pushed up buying for liquidity reserves,” said the expert.
However, the above expert said that the government bond yields may soon increase again in the near future has the State Treasury has only mobilised 123.852 trillion dong of government bonds, completing just 47.5 percent of the annual plan. Thus, the agency is likely to accelerate the mobilisation in the last months of the year.
Nevertheless, this is the time banks pay more attention to credit. Many banks have been granted higher credit growth room and other banks are still waiting. If they are approved for higher credit growth limit, the capital flows will certainly focus on creditthe segment with higher profitability, instead of bonds. The possibility is even higher after banks have purchased a sufficient volume of bonds to replace the maturing volume.
