Government bond auctions run into problems


HÀ NỘI — After tasting success in the first seven months, the issue of Government bonds have been facing difficulty from early August with the bidders’ expectation of rising interest rate and decreasing bank liquidity.

Following the unsuccessful auctions in the first two weeks of August, the State Treasury was more cautious last week, conducting an auction for bonds with three tenures of five, 10 and 15 years, totalling only VNĐ3 trillion (US$132 million). However, no tenure was issued successfully, with the bid volume dropping sharply to VNĐ3.48 trillion, the lowest since the beginning of the year.

Bid interest rates also increased sharply by 10, 17 and 40 basis points for five, 10 and 15-year bonds, respectively.

It was quite in contrast to the success of the G-bond issue in the first seven months of the year when the State Treasury met up to nearly 77 per cent of the yearly issue plan. Demand for G-bonds in the first seven months was often three or four times higher than the issued volume that helped the average winning ratio reach 82.5 per cent and winning yield decline significantly.

With the success of the G-bond issue in the first seven months, the National Financial Supervisory Commission last month even said if it could maintain the issue rate of roughly VNĐ20 trillion per month on average, the State Treasury would meet the G-bond issue plan for the entire 2017 in September.      

However, that has changed in the past three weeks with the only successful auction being held on August 2.

According to SSI Research, the expectation of changes in the liquidity of the banking system and the interest rate has caused problems for the State Treasury in capital mobilisation through the bond issue.

The interest rate in the inter-bank market last week inched up for the second consecutive week, with the overnight rate rising nine basis points to 0.76 per cent.

The State Bank of Việt Nam last week also pumped in a total of VNĐ4 trillion into the economy through the bill issue.

The State Treasury recently revised its bond issue plan with a decrease of five-year bonds from VNĐ80.3 trillion to VNĐ49.3 trillion and an increase of above seven-year bonds.

The State Treasury needs to mobilise bonds worth VNĐ38.8 trillion from now until the year-end to meet the yearly target after having so far successfully mobilised a total of VNĐ204.5 trillion.

According to SSI Research, with the slow disbursement rate of the State budget and bond capital, the mobilisation of additional G-bonds is not necessary and can lead to waste and rising public debt. Only VNĐ5.2 trillion of capital from G-bonds was disbursed by the end of June, equivalent to 10.4 per cent of the yearly plan.

SSI Research analysts estimated that the net capital value of G-bond issues in the first seven months of 2017 is some VNĐ120 trillion, while the amount last year was nearly VNĐ200 trillion.

This is one reason for the rise in the proportion of public debt per GDP every year, the analysts noted.

Source: Vietnam News

Photo: CBR Investment AG