Bond yields dip to record lows but at a decelerating pace. March G-bond issuance increased 10.1% MoM to VND11tn (USD486mn), but the winning rate dropped to 66.2% from 84.9% in February. In Q1 2018, the VST issued VND40.4tn (USD1.78bn) of G-bonds, reaching 89.8% of the Q1 issuance plan and 20.2% the full-year target. Secondary market turnover surged 72% MoM, which helped the average daily trading value advance 17.2% MoM and 67% YoY to VND12.3tn (USD543mn).
Abundant liquidity supported G-bond issuance. In February, the VST raised VND10.0tn (USD442mn) out of VND11.8tn (USD552mn) offered, equivalent to a winning rate of 84.9%. The VST announced the G-bond issuance plan for 2018 with a total expected issuance amount of VND200tn (USD8.85bn), 9.1% higher than the 2017 target.
Abundant foreign inflows buoy excessive liquidity in the banking system
Thanks to abundant USD supply, including USD1.1bn in disbursed FDI, a trade surplus of nearly USD200mn, strong inflows to the bond and stock markets as well as participation in SOE IPOs, the SBV purchased USD3.5bn in January and added around USD3.0bn during February 1-8, bringing its foreign reserves to around USD59bn, which is sufficient to cover nearly 3.4 months of imports.
Strong foreign inflows injected excessive liquidity in the banking system. Thanks to strong foreign inflows, especially from the Sabeco divestment, SBV purchase a large amount of USD in December (more than USD3.5 billion on December 22) and pumped an equivalent amount of VND to the banking system.
November bond issuance surged 21.9% MoM to VND9.15 trillion (USD405 million). However, the VST raised only VND2.9 trillion (USD129.7 million) through G-bonds, down 58% MoM, G-backed bond issuance surged to VND6.22 trillion (USD275.3 million) from VND600 billion (USD26.6 million) in October thanks to more attractive yields.
Bond yields slid amid ample liquidity, low issuance pressure and low inflation. Primary bond market issuance surged 92.4% MoM to VND7.51 trillion (USD332 million) in October, partly thanks to the resumption of G-backed bond issuance after a five-month absence. The winning rate also rose to 60.5% (equally for both G-bonds and G-backed bonds) from nearly 49% in the previous month.
Winning rate for bond issuance increases from previous month. In September, the Vietnam State Treasury (VST) issued VND3.9 trillion (USD171 million) of G-bonds, up 22.8% from August. The winning rate also improved to 49% from 24.5% in August due to lower bond supply from VST while demand maintained stable.
Low offered yields led to unsuccessful auctions. Only VND3.2 trillion (USD141.3 million) of G-bonds were sold in the primary market in August (-79% MoM) out of VND13 trillion (USD573 million) offered, leading to a winning rate of 24.5% (vs 92.5% recorded in July).
The Vietnam State Treasury (VST) amended its 2017 G-bond issuance plan by halting issuance of three- and less-than-three-year bonds and reducing its 5Y bond issuance target to focus more on long tenor bonds instead. During the review period of July 17 to August 18, VND8.9 trillion (USD392.9 million) of G-bonds were issued in the primary market, a 53% drop from the previous reviewed period due to low yields, which discouraged investor demand, and a high completion rate of the annual target
Interbank interest rates declined further as liquidity remained high. Although credit grew by a strong 9.06% in H1 2017, from the end of 2016, liquidity in the banking system has remained high due to slow disbursement of allocation and capital for basic construction investment (state expenditures for investment and development completed only 23.3% of the FY2017 target in 5.5M 2017).