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Gov't bonds soak up idle bank capital   2012-02-24 - VNS

The bond market has witnessed positive developments since the beginning of the year, with most bond auctions on the Ha Noi Stock Exchange seeing a high success rate, especially for short-term bonds.

The State Treasury offered a total VND6 trillion ($285.7 million) worth of Government bonds in terms of three, five and 10 years, but only the three- and five-year bonds sold out, at winning yields of 11.6 and 11.68 per cent per year, respectively – down from as high as 12.1 per cent and 12.15 per cent in the last two auctions.

"Interest rates on Government bonds have dropped below market expectations," Bao Viet Securities Co analyst Ngo Minh Hoa told the newspaper Lao Dong (Labour). "Banks are seeking Government bonds, which they view as a good investment channel for the time being," she said. "Banks hardly have any better investment choices."

Hoa noted that even mid-sized banks had started to pour money into bonds, with the number of auction participants increasing from two to five bidders in previous months to nearly 20 in recent auctions.

"Big banks don't lack capital but the connection between big and small banks on the open market before was very strong," said the head of the analysis department of BIDV Securities Co, Tong Minh Tuan. "Now this relation is somewhat weaker, helping push up temporary liquidity."

Government bonds were a temporary channel to optimise this short-term liquidity since yields remain lower than interest rates earned on loans to enterprises and individuals.

"Overall the bond market this year, including Government bonds, will still face many difficulties and operate towards the direction of supporting credit growth targets and absorbing short-term usable capital," said the deputy head of Vietinbank's investment department, Vu Anh Duc.

Major banks have also seen increasing success in auctioning bonds. Viet Nam Development Bank sold VND2 trillion ($95.2 million) worth of three-year bonds at a winning rate of 12.2 per cent and another VND2 trillion worth of five-year bonds at 12.25 per cent. Meanwhile, the Viet Nam Bank for Social Policy sold out an issue of three-year bonds at yields of 12.35 per cent per year, and sold 62.5 per cent of its offer of five-year bonds at a rate of 12.4 per cent per year.

According to market insiders, the success of these recent bond auctions was largely due to investor expectations of lower inflation, forecast to be around 10 per cent this year, as well as a reduction in bank interest rates. Some major banks have already announced cuts in lending rates, including Vietcombank, the Bank for Investment and Development of Viet Nam and Vietinbank.

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