17:04 | 27/06/2016 Economy
Government bonds have been popular this year and in fact are considered the favourite asset class for credit institutions and foreign investors.
Illustrative photo - (Source:Internet)
The State Treasury said in May bond issuances raised 43.34 trillion VND (1.93 billion USD), almost half higher than in April, with five-year papers being the bestsellers, accounting for 77 percent.
Liquidity in the economy and buying by foreign investors have been the prime reasons for the heavy buying.
For banks it was not the peak lending period, meaning many of them were sitting on piles of cash from short-term deposits.
According to the Ministry of Planning and Investment, the banking sector’s credit grew by only 4.52 percent as of May 20.
The Treasury, on its part, saw this as an opportunity to mop up cash.
The banking sector has been awash in liquidity: the central bank has mopped up nearly 20 trillion VND via open market operations while the interbank interest rates have dropped sharply across the board.
The interest rates for overnight to one-week loans on the interbank market last week plunged to the lowest level in more than one year after the central bank issued Circular 06/2016/TT-NHNN to reduce banks’ adequacy ratios.
The overnight rate fell by 32 basis points to 1.46 percent a year and the one-week rate dropped 51 points to 1.55 percent.
The central bank has also been buying a lot of foreign exchange to increase its reserves to an estimated 7 billion USD now.
Foreign investors have been very active on the bond market, the primary market since Vietnam does not have a secondary bond market.
In the last week of May alone, for instance, their buying topped 2.2 trillion VND, taking their total net buying this year to 10.7 trillion VND.
The treasury plans to issue bonds worth 70-80 trillion VND in the second quarter, most of them for short terms.
It expects to easily achieve this target since in its recent Circular 06 the central bank increased the maximum rate of short-term deposits that can be invested in government bonds from 15 percent to 35 percent for foreign banks and to 25 percent for State-owned banks.
This means dozens of trillions of VND worth of bonds are likely to be sold./.