Fixed Income November 2017 – 5Y-bond yields reach record low
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.
– 5Y-yields fell 15 bps MoM to 4.5%, the lowest level in at least the last 11 years, resulting in a fairly low winning rate (57.7%) compared to seven-year (65.1%) and 10-year bonds (82.6%).
– Secondary market trading volume remained high at VND210 trillion (USD9.3 billion) in October, up 2.1% MoM, supported partly by high liquidity in the banking system and low inflation (0.4% MoM, 2.25% YTD).
– Secondary market yields continued to fall across tenors. The strongest decline was seen in one-year bonds (down 20 bps to 3.8%), amid high bank liquidity. At the end of October, five-year yields were quoted at 4.6%, down 11 bps from the previous month.
– Declining yields, along with expectations that liquidity could tighten in the last two months of the year led foreign investors to take profits, which then caused foreign outflows of VND680 billion (USD30.1 million) in October after four consecutive months of net purchasing in the secondary bond market. Nevertheless, in 10M 2017, foreign investors still net bought VND17.8 trillion (USD789 million) in the bond market.
– Bond yields should rebound slightly in the coming months, due to seasonal factors that should lessen liquidity in the system, and thus reduce bond demand.