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Increasing attractiveness for government bonds

19:35 | 11/12/2018

VCN- In the past time, the Government's State Treasury (State Treasury) capital mobilization through the issuance of government bonds has faced many difficulties, although the interest rates of other terms have increased slightly. This requires the State Treasury to restructure the bond market.

tin nhap 20181210155223 State Treasury has mobilized more than 122,000 billion VND of government bonds
tin nhap 20181210155223 Over VND96 trillion of G-bonds mobilised
tin nhap 20181210155223 State Treasury has issued 75,000 billion VND Government bonds in Quarter 3
tin nhap 20181210155223
State Treasury’s staff inspects the money. Thuy Linh’s photo

Dependence

According to information from Hanoi Stock Exchange, only in November, 2018, Hanoi Stock Exchange held 14 bidding sessions, mobilizing a total of 10,220 billion bonds. Although this month's mobilization rate has increased by 23% compared to October 2018, but in general, the rate of winning value compared to the tender offer this month only reached 52.1%.

In fact, it can be said this level of mobilization is not high although the State Treasury has increased interest rates on all terms. In comparison with October, 2018, the winning interest rate of the State Treasury bonds in November increased by: 10 years increase 0.15% per year, 15 years increased by 0.10% per year. Accordingly, the winning interest rate of 10-year bonds is in the range of 5.00-5.10% per year and 15 years at 5.25-5.30% per year.

According to the State Treasury, the capital mobilization through issuing bonds is still quite passive. Although the market for VGBs has been established, the market structure has been gradually improved, but due to the small size of the market, the number and diversity of investors are not high, the market is unstable. It is highly dependent on the monetary market and the impact of the fluctuations in the international financial market.

Along with that, the number of insurance companies and investment funds is still small, financial capacity is weak so the participation in the bond market is limited. Therefore, supporting the Ministry of Finance to stabilize the market in times of market fluctuations are not effective.

According to the State Treasury, the State Treasury has faced the pressure to meet the requirement of combining the task of capital mobilization through issuing bonds in the market with the use of investment capital to avoid the situation of borrowing, but this has not been used yet. The mobilization of capital associated with the speed of disbursement of investment capital in the first time may increase the effectiveness of G-bond use, however, putting pressure on supply at the end of the year and interest rates on the market. In fact, the State Treasury only mobilizes capital when they receive requirement, but there is a risk of no capital to meet the demand. On the other hand, if the need arises at a difficult time in the market, the State Treasury will not be able to mobilize capital or be forced to raise very high interest rates to ensure the ability to mobilize, leading to bad impacts on the market, increasing the cost of debt financing of the state budget to pay in the long term due to long-term investment loans.

Maintaining the term of 6-8 years actively

Tran Thi Hue, Deputy General Director of the State Treasury, said that the Prime Minister's Decision No. 1191/QD-TTg has set a target to develop the bond market with outstanding loans reaching 38% of GDP by 2020, the average term of the Government bond portfolio lasts about 6-7 years. Achieving these objectives, in the near future, with the issuance of the Law on Public Debt Management in 2017 and the legal document system, the issuance of Government Bonds will continue to be finalized and changed in the direction of supporting market development. Accordingly, the State Treasury will focus on issuing government bonds in the form of bidding, ensuring publicity, transparency and efficiency. At the same time, maintaining the term of the list of Government bonds at an average of 6-8 years, a harmonious combination of long-term issuance to extend the list of short-term debt to save costs.

In addition, the State Treasury continues to run interest rates in the direction of approaching market interest rates to maintain the stability of the bond market, in line with the direction of the State Bank of Vietnam.

tin nhap 20181210155223 G-bonds see higher interest rates at latest transaction

Government bonds fetched higher interest rates for all maturity terms at the latest auction held on June ...

In particular, the G-bond will be restructured in the 2019-2021 period through the issuance of long-term government bonds. Flexible issuance of VGBs with the first interest payment period longer or shorter than one standard payment period and implementation of swap/re-buy of government bonds to avoid debt peaks and reducing the pressure on repayment of bonds due to the budget. In addition, the additional issuance will be implemented to increase the size of the bond code, forming the standard bond code.

By Ngoc Linh/ Quynh Lan