Recent issuances have struggled under weight of five-year tenors, which HSBC says needs to change.
HSBC has pinned its hopes on changes to Resolution No. 78, which will give the Ministry of Finance (MoF) more flexibility in bond issuances, according to a report its Research Department released yesterday.
Resolution No.78 become effective at the beginning of this year is widely said to be behind the dampened enthusiasm for government bonds at recent auctions. The Resolution stipulates that the State Treasury can only issue bonds with tenors of five years or more. This caused a significant shift in the profile of Vietnam’s bond issuances.
“The market does not have the appetite to buy such unprecedented amounts of long-dated bonds,” the HSBC report stated. Chart 3 here shows that over the last few years government debt has been short-dated. In 2013 and 2014 less-than-five-year tenors accounted for 72 and 49 per cent, respectively, of total issuances.
MoF has had a hard time with domestic issuances this year, HSBC added. The bank pointed out that of the VND250 trillion ($11.4 billion) of financing needs in 2015, the ministry has successfully issued only VND66 trillion ($3.02 billion) year-to-date, or 27 per cent.
Seven auctions failed in May, so the Vietnamese Government had plans to use its foreign exchange reserves. The State Bank of Vietnam (SBV), however, needs to defend the exchange rate and financing government projects with foreign reserves would leave the VND in a precarious position. Foreign reserves cover only 2.5 months worth of imports; well short of the recommended minimum of three months.
HSBC also said that if Resolution No. 78 was not amended at ongoing National Assembly meeting that lasts until June 26, HSBC still does not expect that the government would pass legislation to enable it use its foreign exchanges reserves. “The risks are simply too great,” HSBC said.