Investors’ trust in, demand for government bonds highly increasing
Nearly 77% of the plan on government bond mobilisation completed
According to the State Treasury’s report, accumulated by the end of the third quarter of 2020, the total volume of issued government bonds was VND 237,789 billion, approximately 77% of the plan (VND 309,090 billion).
Government bonds are mainly mobilised by auctions on the stock market. Government bond terms are diversified by the State Treasury, focusing on issuingfive-year or more term government bonds, accelerating issuance of long-term bonds (from 10 years or more) to restructure theGovernment bond portfolio. At the same time, the government bond issuance interest ratesareflexibly and reasonably managed and closely follow the market, taking advantage of favourable market conditions to issue long-term bonds with low interest rates. The average government bond issuance term in 2020 is 13.3 years and the government bond issuance interest rate in 2020 averages2.94% per year.
According to the State Treasury, due to the influence of the Covid-19 pandemic, in the first months of 2020, the domestic and international financial and monetary markets have suffered adverse fluctuations. Specifically, the government bond interest rate on the secondary market increased sharply from mid-March. Moreover, because the Covid-19 pandemic had a strong impact on the economy, investors were worried and gradually withdrew frombond trading on the secondary market and reduced their investment in long-term government bonds.
Facing these disadvantages, the State Treasury requested Vietnam Social Insurance and Deposit Insurance to participate in government bond bidding. By this way, the government bond issuance interest rate did not increase dramatically and closely followed the government bond interest rate on the secondary market and the State Treasury gradually increased the mobilised capital volume, meeting the State budget’s spending need.
According to Nguyen Thi Ngoc Hieu, Deputy Director of the Treasury Management Department (State Treasury), from mid-June up to now, interest rates have tended to decrease slightly due to investors’ trust in the Government’s ability to control the pandemic and due to slow growth of credit and abundant liquidity on the monetary market, the interest rates have remained at low levels. As investors have returned to the market, the demand for government bonds has increased.
Continuing to issue various types of government bonds
In 2020, in addition to the task of capital mobilisationto meet the capital needs of balancing the State budget, the State Treasury also fulfilled the goals of promoting the development of the domestic capital market; restructuring the government bond portfolio towards safety and sustainability.
Therefore, the State Treasury will focus on issuing government bonds by bidding method through the Hanoi Stock Exchange to complete the capital mobilisation target assigned by the Ministry of Finance, ensuring compliance with regulations on maturity according to the resolution of the National Assembly and targets on reforming the state budget and public debt towards ensuring the safety and sustainability of the national financial system.
For capital mobilisation from now to the end of the year to continue to achieve high results with low mobilisation interest rates, the State Treasury will continue to take advantage of market conditions to accelerate Government bond bidding to raise capital quickly, meeting the needs of balancing the State budget. At the same time, the State Treasury continues to issue various types of bonds, of which, issuance of long-term bonds will be prioritised; and the issuance interest rate will closely follow the interest rates of transactions on the secondary market such as focusing on issuing bonds with a term of fiveyears or more, increasing the issuance of long-term bonds (from 10 years or more).
In the future, the State Treasury will formulate and submit to the Ministry of Finance a plan to manage the State budget quarterly and annually in line with reality and in accordance with legal regulations. Forecasting of cash flows and the State budget management continue to be improved in quality and be safe and effective to meet the payment needs of the budget levels, units opening transaction accounts at all times.
In September, the Hanoi Stock Exchange held 22 bond auctions, raising total of VND 60,141 billion, up 163% from the previous month. In which, 100% of the bonds were issued by the State Treasury. The bid-winning rate in September reached 98% with bid volume 3.5 times higher than the ask volume.
By Thuy Linh/ Huyen Trang