Photo shows Government bonds being traded (Photo: tapchitaichinh.vn) Hanoi (VNA) –Trading liquidity of the Government bond market may increase once the StateTreasury of Vietnam isable to buy and sell bonds, a State Securities Commission (SSC) official said.
The State Treasury will be able to buy and sellGovernment bonds (G-bonds) when Circular 10/2017/TT-BTC, which was issued bythe finance ministry in early February 2017 to amend an older legal policy onthe bond trading market, takes effect on September 1, 2017.
Ta Thanh Binh, head of the marketdevelopment department at SSC, said the function of the State Treasury underthe new Circular complies with Decree 24/2016/NĐ-CP issued in April 2016.
The decree allows the State treasury to buy backG-bonds, local-authority bonds and Government-backed bonds with maximummaturity of three months to make the best use of temporary idle State budgetand provide funding for local governments to implement their socio-economicdevelopment projects.
Once the State Treasury is able to participatein bond trading, the market will definitely improve its trading liquiditybecause the treasury is not only an issuer, but also a huge investor.
The treasury will buy bonds during low-demandsessions and sell bonds during low-supply sessions to balance market tradingand increase liquidity.
The total value of Vietnam’s bond market is quite small compared to thecountry’s GDP. In 2016, total scale of the bond market was only 36.9 percent ofthe total GDP, although Vietnam recorded G-bonds worth 281.75 trillion VND (12.52 billion USD), exceeding the wholeyear’s plan by 12.7 percent.
Trading liquidity of the secondary bond marketwas quite impressive in 2016, with the average trading value reaching 6.28trillion VND in each session, anincrease of 72 percent from 2015’s average. However, that value is quite lowcompared with other economies in the region.
“The new decision will also help improve conditionsof the repo (repurchase agreement) market as an investor can combine twoordinary sells and buy orders at the same time with a partnerfrom September 1 onwards. This trading mechanism has been conductedin the global securities market for a long time,” Binhsaid.
The risks that the bond market may suffer fromshort-selling of bond notes will be reduced, according to Binh.
“Basically, selling G-bonds can only be donewhen the seller has a sufficient amount of G-bond notes to sell on settlementday.”
“The G-bonds that are available for transfershould be already available in the seller’s depository account on settlementday or the seller should receive those G-bonds either before or on settlementday from the previous trading or borrowing order.”
To minimise potential risks, the financeministry regulates that only market members that are eligible to auctionG-bonds can borrow G-bonds for selling and the lending term must not exceed 180days, she said.
The sides involved in the transaction mustnegotiate and are responsible for related terms such as trading volume,guaranteed assets and bond yield rate, she added.
“We deploy short-selling activity on the bondmarket before the stock market because members of the bond market arewell-organised, well-administrated and are financially creditable.”
“The bond-lending mechanism should be conductedcarefully, and after a period of implementation, we will summarise the work andconsider deploying it for stocks and other derivative products.”
“The government has targeted developing theG-bond market as a standard for the country’s financial market and the core toimprove the bond market.”
“To achieve this target, we need to improve andcomplete the legal system, assist the market, develop the mechanism on marketintermediaries and diversify products to attract more investors.” -VNA
VNA
