Vietnam G-Bond Market Contracts

Vietnam’s local currency bond market decreased by 1.7% at the end of June this year to reach US$58.2 billion, after posting 10.4% quarterly growth in the first quarter, Asian Development Bank (ADB) said in its ASEAN Bond Monitor.

According to ADB, this is mainly due to lower outstanding debt in the Government area, even as the corporate bond stock increased.

Vietnam’s government bond segment contracted 7.8% quarter on quarter at the end of June to reach US$50.1 billion, accounting for 86.2 percent of the country’s total bond stock. Corporate bonds, however, surged by 65.6% in the second quarter compared to the first, reaching US$8 billion. On an annual basis, growth in corporate bonds stood at 76% at the end of June this year.

The region’s outstanding government bonds reached US$10.5 trillion at the end of June and made up 60.8% of the region’s aggregate bond stock. Corporate bonds, meanwhile, totaled US$6.7 trillion.

In late June 2020, Vietnam’s local currency bond market posted a healthy 9.5% quarter on quarter growth in the first quarter of 2020 to reach US$57.6 billion at the end of March, according to ADB. This is mainly due to the government bond segment growing 10.5% quarter on quarter in the first quarter, to reach US$53.3 billion and account for 92.6% of the country’s total bond stock. Corporate bonds, however, contracted 1.7% quarter on quarter in the first quarter to reach US$4.2 billion at the end of March, given the absence of new issuance over the review period.

Government bond yields in most emerging East Asian markets declined from June 15 to September 11 on the back of accommodative monetary policies and weakening growth across the region. Meanwhile, improving sentiment has led to gains in equity markets and a narrowing of credit spreads, with most regional currencies strengthening against the dollar.

Local currency bonds outstanding in emerging East Asia reached US$17.2 trillion at the end of June, up 5% from March this year and 15.5% higher than in June 2019. As a share of regional gross domestic product, emerging East Asia’s local currency bonds outstanding climbed to 91.6 % at the end of June, from 87.8% in March, mainly due to the large amount of funding needed to fight the pandemic and its impact. Bond issuance in the region hit US$2 trillion in the second quarter, up by 21.3% from the first quarter this year. China remained home to the region’s largest bond market, accounting for 76.6% of the region’s total bond stock as of the end of June.

According to ADB, the improvement of global investment sentiment and financial conditions has provided a much-needed lift for local currency bond markets in emerging East Asia, despite risks from the COVID-19 pandemic.

ADB Chief Economist Yasuyuki Sawada said governments in the region have been agile in dealing with the impact of the COVID-19 pandemic through a wide range of policy responses, including monetary easing and fiscal stimulus. It is crucial that governments and central banks maintain accommodative monetary policy stances and ensure sufficient liquidity to support financial stability and economic recovery.

Emerging East Asia consists of China, Hong Kong (China), Indonesia, South Korea, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

By Anh Mai, Vietnam Business Forum