Government and Government-backed bond sales in the first four months of the year were looking positive but achieving the target for the year will depend on credit expansion and the growth of total assets of credit institutions.

The State Treasury has set a target of 150 trillion VND (7.14 billion USD) worth of Government bonds (G-bonds), while the total value of Government-backed bonds will be capped at around 58 trillion VND (2.77 billion USD), according to Vietnam News.

As of April 25, the total capital via G-bonds and Government-backed bond sales reached nearly 81.9 trillion VND (3.9 billion USD), accounting for 39.3 percent of the 2013 plan and up 35.1 percent on the same period last year.

Of the total, 67.9 trillion VND (3.23 billion USD) was raised through G-bonds, up 179.6 percent year-on-year and fulfilling 45.3 percent of the 2013 plan. However, capital raised via Government-backed bonds fell 39 percent from the same period of last year, reaching nearly 14 trillion VND (666.7 million USD), or 24.1 percent of its 2013 plan.

Successful bids focused on the short-term bonds (2-5 year terms) which accounted for 22.5 percent, 33 percent and 21.1 percent of the total value respectively. The 10-year bonds only made up 3 percent of the total.

Interest rates paid on bonds were decreasing. Yields of bonds issued in the most recent bid decreased 179 points compared to the first issue this year for 52-week bonds, 155 points for 2-year bonds, 135 points for the 3-year bonds and 120 points for five-year bonds.

Market insiders attributed such a high success rate to the abundant liquidity of banks, which was due to low credit growth in recent years. In addition, reduced interest rates helped push investors to G-bonds.
However, analysts say the sale of G-bonds and Government-guaranteed bonds towards the end of this year will depend heavily on the monetary policy: including interest rates, credit growth of banks and expansion of total assets of the whole banking system.

Commercial banks were the main holders of G-bonds and Government-backed bonds whose holdings were estimated at 85-90 percent of the total market value. Investments in these papers usually occupied 5.7-8.6 percent of their total assets.

According to the State Bank of Vietnam 's most recent report, the credit growth of the whole banking system as of April 23 reached just 1.4 percent. Meanwhile, total assets of the system by the end of February reached 5,010 trillion VND (238.57 billion USD), down 1.5 percent compared to the end of last year.

Analysts were concerned that with such a low growth rate in both credit and bank assets in the first months of the year, it would be a difficult task to fulfil the 2013 government bond fund target.

The key factors now, they said, were that the Government should maintain stable macro economic conditions and a steady or declining interest rate policy, ensure credit growth of 10 percent and growth in total bank assets of 10-15 percent; and regulate a balanced monetary policy to ensure bank liquidity.-VNA