Market Summary

Yield Movements

Between 1 March and 8 May, local currency (LCY) government bond yields in Viet Nam climbed for all tenors. Bond yields rose faster at the short-end than the long-end, resulting in a flattening of the yield curve. The overall upward trend in bond yields was influenced by the uptick in deposit rates. A regulation by the State Bank of Vietnam, which came into effect in 2019, reduced the ratio of short-term capital that can be used for long-term lending. Only 40% of a bank's short term capital can now be used for long-term lending, down from the previous allowable amount of 45%. As a result, borrowing costs edged higher.

Size and Composition

Viet Nam's LCY bond market reached a size of VND1,193.0 trillion (USD51 billion) at the end of March. Growth rose a marginal 0.7% quarter-on-quarter (q-o-q) in the first quarter (Q1) of 2019, a reversal from the 5.0% q-o-q contraction in the fourth quarter (Q4) of 2018. On a year-on-year (y-o-y) basis, however, a 0.2% contraction was recorded. Total LCY government bonds outstanding stood at VND1,092.2 trillion at the end of March, with growth rebounding to 0.9% q-o-q in Q1 2019 after contracting 6.1% q-o-q in the preceding quarter. On a y-o-y basis, the government bond market contracted 2.4% after expanding 7.9% in Q4 2018. The stock of Treasury instruments was the sole driver of growth as the stocks of central bank bills and government guaranteed and municipal bonds contracted during the review period. The outstanding stock of LCY corporate bonds reached VND100.7 trillion, with growth declining 1.3% q-o-q but rising 31.9% y-o-y.

Policy, Institutional and Regulatory Developments

IIn April, the State Treasury announced that it plans to issue VND80 trillion bonds in the second quarter of 2019. The issuance plan is as follows: (i) 5-year Treasury bonds worth VND10 trillion, (ii) 7-year Treasury bonds worth VND5 trillion, (iii) 10-year Treasury bonds worth VND26 trillion, (iv) 15-year Treasury bonds worth VND30 trillion, (v) 20-year Treasury bonds worth VND5 trillion, and (vi) 30-year Treasury bonds worth VND4 trillion. For 2019 as a whole, the government is targeting to issue VND200 trillion.