Demand for Government bonds rises

Demand for Government bonds rises

Demand for Government bonds from commercial banks started to increase thanks to an excess in liquidity in the system.

The State Treasury announced it had sold a large amount of two-year bonds without increasing bond yields. In its two auctions in August, it sold VND1.75 trillion (US$82.5 million) bonds with 7 per cent interest rate, the same as in late July.

On the secondary market, transactions earlier this month improved nearly 100 per cent compared to late in July, hitting VND5.7 trillion ($268.8 million).

Although transactions focused on bonds of short terms (one to two years), it has shown that banks found government bonds attractive again. Banks are the main buyer of bonds.

Saigon Securities Inc analysts said in a report, "Banks started to buy bonds, expecting that the market would rebound after the money market stablised."

In July, bonds auctions almost failed because banks wanted to bid at high yields while the Ministry of Finance tried to keep rates low. In August, however, banks bought regardless of bond yields.

In fact, the return of investors to bonds was predicted by the Bank for Investment and Development of Viet Nam. As the stock market declined, the bank said, demand would come to bonds as bank liquidity improved and the economy had not signalled prosperity.

Foreign investors also contributed to the rally of bonds. After unloading a net value of VND10 trillion ($471.7 million) in June and July, as of August 9, they were net buyers with VND204 billion ($9.6 million).

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