Bonds unsalable, capital flow changes direction

Bonds unsalable, capital flow changes direction

After a prosperous period in March and April, the Treasury bond market has become quiet, because commercial banks now keep indifferent to bonds.

The bond bids held at the Hanoi Stock Exchange recently cannot attract investors, leaving bonds unsalable. No once could imagine before that banks would stop injecting money in bonds, because bonds were considered as the optimal solution to the banks which have profuse capital.

However, the capital flow has changed its direction recently. The latest government bond bidding, which took place on June 21, 2012, did not succeed with a very low percentage of bonds sold at 8 percent. Only 400 billion dong worth of bonds were sold, while the Treasury looked for the buyers for 5 trillion dong worth of bonds.

Only 100 billion dong worth of 2-year bonds were sold (10 percent of the total amount of bonds offered), 100 billion dong worth of 3-year bonds (5 percent), 200 billion dong worth of 5-year bonds (10 percent). The interest rates had been fixed at 9.2 percent for 2-year bond, 9.4 percent for 3-year and 9.55 percent for 5-year bonds.

The Hanoi Exchange, in its report, pointed out that the indifference kept by the market’s members was the main reason behind the low sales of bonds. Only several members joined the bids which were only interested in long term bonds.

Especially, only two members joined the bids for 2-year bonds, while five members joined the bids for 3-year bonds and four members planned to buy 5-year bonds.

The quietness of the primary bond market could be seen most clearly in the first two weeks of June. The State Treasury failed to mobilize sufficient capital at all the three bids, taken place on June 7, June 13 and June 21. Especially, only 8 percent of bonds were sold at the bid on June 21.

MB Securities believes that the bond interest rates have become much lower than investors’ expectations, thus making bonds no more attractive to banks, even though banks still have redundant capital.

Commercial banks now try to push up lending to obtain the monthly two percent credit growth rates in the second half of 2012.

According to the Hanoi Stock Exchange, 1250 billion dong worth of government bonds and 3060 billion dong worth of guaranteed government bonds have been successfully issued in the last two weeks. The ratio of sold bonds on the offered volume of bond was at very low level, while the bond yield has been hovering around 8.9-9.4 percent for 2, 3 and 5-year term bonds.

The primary bond market is forecast to be less bustling in the time to come, because the volume of bonds to become matured in the upcoming months is not big.

The interest rates have been decreasing significantly after the State Bank lowered the ceiling deposit interest rate by two percentage points and slashed key interest rates by one percentage point.

Currently, the short term deposit (less than one year) interest rates have been around 9 percent per annum, while banks pay 12-14 percent per annum for long term capital.

The move is believed to help balance the capital structure to ease the liquidity risks. Banks now have short term capital in excess, while they lack long term capital.

In fact, the first signs of the bond market decrease appeared in the second half of May already. At that time, though the market was bustling, the Treasury never could mobilize sufficient capital. The sharp fall of the bond yield has been cited as the main reason behind the lessened attractiveness of bonds in the eyes of banks.

The current bond yields are about 8.8-9.5 percent, which are believed to decrease further in the time to come, when the State further slashes key interest rates by one or two more percent.

vietnamnet