Government bonds become darling of foreign investors

Government bonds have recently seen strong foreign buying despite the facts that the dollar is expected to continue appreciating due to the US’s plan to raise interest rates a few more times in the near future and that Vietnam does not have incentives to attract foreign investment in its bonds.

Market observers also said the government bond market liquidity has improved a great deal thanks to the investments from abroad.

Foreign investors bought VND11 trillion (US$484.6 million) worth of the bonds in the first five months of the year, according to the National Financial Supervisory Committee.

Data from VP Bank Securities Company shows that between June 23 and 26 foreign purchases of government bonds on the secondary market were worth VND61.647 trillion, an increase of 34.8% over the previous week.

The Saigon Securities Company said that in the first half of the year foreigners bought government bonds worth VND14.9 trillion (US$656.4 million), an increase of VND1.7 trillion (US$74.9 million) over the same period last year.

The chief of a foreign-invested fund management company, who asked not to be named, said the biggest concern for foreign investors buying government bonds was the depreciation of the dong against the greenback.

However, the value of the dollar had not changed much though the US central bank has hiked rates several times.

The dollar appreciated slightly against the dong after the US raised the rate once in mid-June, but soon declined.

Recently the State Bank of Vietnam allowed the dong to decline slightly to VND22,725 per dollar.

It was facilitated in this by the downward trend in inflation and the exchange rate since the beginning of this year, thus creating conditions for the central bank to improve the foreign exchange reserves and to inject liquidity into the market without resorting to open market operations and not putting pressure on the exchange rate.

An executive at a major bank in HCM City said that with the many positive aspects in the economy the dong-dollar exchange rate is likely to remain steady until the year-end unless there are unexpected extraneous factors.

To take advantage of this opportunity, he said, the Ministry of Finance is drafting a plan with many incentives to attract foreign funds into the bond market.

If they are offered tax and fee breaks, foreign investors would be happy to enter the bond market, he said.

VNA

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