Experts urge Vietnam bond market development

The formation of a Government bond market would increate the liquidity of bonds and create a more standardised yield curve, said the chief advisor of Japan’s Nomura Research Institute, Yoko Ogimoto, at a conference here yesterday.
The Vietnamese bond market remains limited and the nation’s bonds-to-GDP ratio is relatively low, at about 16-17 per cent, compared to 40 per cent or more in other regional neighbours like the Philipines, Thailand and Malaysia. The value of the local market as of July was about US$16.2 billion, 90 per cent of which was in Government bonds, according to the Vietnam Bond Market Association.

Yields for Vietnam’s Government bonds were ranging between 12.27-12.67 per cent for maturities of 1-15 years, with three-year bonds demonstrating the highest liquidity.

“The most important factor is for an asset to be liquid, making three-year maturities more appropriate,” commented the head of Standard Chartered Bank’s bond and derivative transaction division, Cao Thanh Huyen.

“Yields in the primary market have not truly reflected supply and demand of bonds, and have not acted as an orientation for the secondary market,” added Vietnam Bond Market Association general secretary Do Ngoc Quynh.

Over 95 per cent of investors in Government bonds were commercial banks, who often held them until maturity and relied on the open market as a secondary reserve of liquidity, if needed. Quynh said.

For corporate bonds, Quynh added there was a lack of standardised transactions, and many repo transactions were conducted on the secondary market in the form of outright transactions. Regulations were also needed to support the establishment of credit rating firms.

“Because the competitiveness and effectiveness of the economy is limited,” Quynh said, “investors are losing their faith in the bond market and foreign investment is also decreasing.”

Quynh urged Vietnam to develop a master plan for the bond market. A legal framework should be carefully studied to prevent harmful speculation to the future market, Huyen cautioned.

“Derivative instruments are a complicated area which needs a lot of research,” added State Securities Commission vice chairman Nguyen Doan Hung. “We plan to establish a thorough legal framework on derivatives by 2013.”

Tags: Vietnam banking industry, Vietnam bonds, Vietnam finance, Vietnam financial