Market Summary

Yield Movements

Between 1 March and 15 May, local currency (LCY) government bond yields in Viet Nam increased for all tenors except the 1-year and 2-year maturities, which fell 25 basis points (bps) and 26 bps, respectively. The decline in yields at the short-end of the curve can be attributed to the State Bank of Vietnam’s reduction of its open market operation interest rate in January when it cut the interest rate by 25 bps to 4.75%. On the other hand, the upward movement in yields of medium-to-long-term bonds reflects mounting pressure from rising global interest rates as the United States Federal Reserve and other major central banks prepare for accelerated monetary policy normalization.

Size and Composition

The size of Viet Nam’s LCY bond market reached VND1,173 trillion (USD51 billion) at the end of March, registering growth of 8.6% quarter-on-quarter (q-o-q). While the government and corporate bond segments both saw increases in the first quarter of 2018, growth in the LCY bond market is largely driven by government bonds, which comprise about 94% of the total. The size of the government bond market grew 8.9% q-o-q amounting to VND1,108 trillion and the corporate bond market grew 4.1% q-o-q amounting to VND65 trillion. Despite the strong growth, Viet Nam’s bond market remains the smallest in emerging East Asia.

Policy, Institutional and Regulatory Developments

Viet Nam’s State Securities Commission issued a draft regulation requiring the initial margin ratio to be at least 60%, effective 1 February. The margin ratio of 60:40 means that investors have to deposit 60% of the purchase price and are allowed to borrow the remaining 40% from the broker. The regulation aims to reduce potential risks in the stock market and restrain credit growth in the banking and financial sector. At the same time, a credit slowdown could affect the growth momentum of the stock market.