COVID-19, dimmed global outlook weigh on bond market

The novel coronavirus (COVID-19) pandemic and deepening global economic uncertainty are putting great pressure on Viet Nam’s local currency bond market, according to the Asian Development Bank (ADB).


In the latest issue of ADB’s Asia Bond Monitor released on Wednesday, ADB reported ten-year government bond yields and two-year government bond yields of Viet Nam declined 50 and 20 basis points between 31 December and 29 February, respectively.

According to ADB, the pandemic and deepening global economic uncertainty are also weighing heavily on local currency bond markets of other East Asian economies, including China, Hong Kong (China), Indonesia, Republic of Korea, Malaysia, Philippines, Singapore and Thailand.

“Financial markets in the region are already feeling the brunt of the effects of the COVID-19 pandemic, with foreign investment and sector activities on the downside, coupled with ongoing trade issues,” said ADB Chief Economist Yasuyuki Sawada.

“Efforts to cushion the negative impacts of the pandemic through stimulus packages and monetary measures to support affected households, businesses, and financial markets should continue.”

In emerging East Asia, all ten-year government bond yields and nearly all two-year government bond yields declined between 31 December and 29 February following a few policy rate cuts by central banks. Hong Kong (China) saw the largest declines in ten-year and two-year government bond yields at 77 and 51 basis points, respectively

According to the report, apart from emerging East Asia, government bond yields also declined in major advanced economies and select European markets between 31 December 2019 and 29 February 2020 as investors took a risk-averse approach and local industries lessened activities due to the global health situation. This resulted in equity market losses in the region, weakened currencies against the US dollar, and widening credit default swap spreads. Market selloffs, which were observed in some regional bond markets in January and February, will likely continue.

Several central banks in emerging East Asia have cut their policy rates to mitigate the economic impact of the COVID-19 pandemic, including mainland China, Thailand, Indonesia, Korea, Malaysia, Hong Kong and Viet Nam.

In March, the US Federal Reserve cut rates twice, leaving its interest rates near zero, along with other measures to support financial markets.

According to ADB, the size of Viet Nam’s local currency bond market slipped to VND1,241.1 trillion (US$53.6 billion) at the end of December, down 3.9 per cent quarter-on-quarter (q-o-q) but up 4.1 per cent year-on-year. The q-o-q decline was driven largely by the maturation of all outstanding central bank bills during the fourth quarter (Q4) of 2019.

New local currency corporate debt issuance totalled VND1.7 trillion in Q4 2019 on declines of 44.8 per cent q-o-q and 86.3 per cent year-on-year. The largest new corporate bond issue during the quarter came from Asia Commercial Joint Stock Bank via a VND1.5 trillion 5-year bond.

Viet Nam’s 31 largest local currency corporate bond issuers had aggregate bonds outstanding of VND97.7 trillion at the end of December, accounting for a 97.7 per cent share of the corporate bond stock. Vinhomes, a real estate services firm, continued to hold the top post at the end of Q4 2019 with outstanding bonds of VND12.5 trillion.


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