Bond mobilization picked up in the second week of 2017 after a few weeks of sluggish issuance due to the completion of 2016’s issuance target. The government successfully raised a large amount of capital (VND316.7 trillion) from bond sales in 2016 thanks to strong bond demand, with a winning rate of 76% caused by high bank liquidity.
Primary bond supply and demand remained low during reviewed period. Primary bond supply fell sharply as the government reached its full-year bond issuance target. Tightening bank liquidity caused by higher corporate capital demand for payments and production at the end of the year weakened bond demand, resulting in a low winning rate of 44% from mid-November to mid-December.
G-bonds supply dropped significantly, but high liquidity in the banking system helped the State Treasury to uphold a weekly average winning rate of 76%.Yields of G-bonds in the primary market were stable from the previous reviewed period, with 10Y and 20Y yields sliding slightly, while yields of other tenors remained unchanged. Supply of government-backed bonds was more than four times the previous period. However, only VND2.53 trillion (USD113 million) of government-backed bonds were
The primary market shifted focus from short-term bonds to long tenors with 30Y bonds occupying more than half the total offering amount. Primary bond supply declined sharply while bond demand still stayed very strong due to high bank liquidity.
On the primary market, the supply of 5Y and 7Y bonds decreased while that of other tenors increased, thus, a sharp decline in bond supply did not materialize despite the full-year bond issuance target being nearly achieved.
In the primary market, the supply of bonds decreased dramatically as the issuance amount has already achieved 87% of the full-year target. Particularly, 5Y bonds have completed nearly 100% of the 2016 plan, which will result in an expected sharp decline in the supply of this tenor in upcoming months despite strong demand for 5Y bonds in the short term. 7Y G-bonds continued to prove attractive to investors with a higher winning rate.
On the primary market, the winning-to-offering rate in the last four weeks touched the lowest level since the beginning of the year. Demand for 3Y and 5Y G-bonds remained strong. The market was marked by the first issuance of 7Y G-bonds and more auctions of VBSP and VDB G-backed bonds, which broadened investment options.
High winning-to-offering ratios of 5Y bonds indicated strong demand for this term. As of mid-June, the Government completed nearly 80% of the full-year target with 5Y-bond issuance already exceeding its plan for the whole year. Trading activity on the secondary market was also the most dynamic since the beginning of the year. Short-term bond yields continued to be in downtrend because of high bank liquidity.
High winning-to-offering ratios, especially of 3Y and 5Y bonds, show strong demand for short-term bonds. High bank liquidity and improved bond demand may result in further declines in winning yields at upcoming auctions. Although the State Treasury has succeeded in front-loading 2016 primary issuance, we expect to see the State Treasury maintain the current pace of issuance to take advantage of high bank liquidity.
Winning yields picked up marginally (<10 bps) as bidding for G-bonds at recent auctions slowed from a high base. Banks are demanding higher yields due to the broad-based increase (10-30 bps) in deposit rates through March for the purpose of capital mobilisation. Liquidity in the secondary market also declined as loan growth started accelerating (est. YTD 1.54% in Q1 2016, vs. Q1 2015’s 1.25%), pushing yields of most tenors to pick up.