Macro Report

Overnight rates surged in response to a long holiday. The money market was quite active last week. Liquidity remained tight before the weekend leading up to the long public holiday, and the SBV accelerated to inject liquidity via reverse repo facility in open market operations. As of Friday, a total of VND 117.8 tn at a longer term (14 days, instead of 7 days in the week before) was issued. Interestingly, the central bank raised the 14-day reverse repo rate to 4.25% p.a, from 4.0% previously. At the same time, VND 11.4 tn worth of SBV bills rolled over for the next 28 days at a slightly higher winning rate of 3.75% p.a (+5 bps).  In terms of expiration volume, there was a total of VND 26.5 tn in SBV-bills and VND 32.86 tn in reverse repos that reached expiry last week. Altogether, the SBV pumped VND 100 tn into circulation. Overnight interbank interest rates spiked again, to 4.8% (+90 bps) as of Friday.

Macro stability is in focus. The money market was quite active last week. Liquidity remained tight before the public holiday on Thursday, and the SBV resumed the 7-day reverse repo facility for open market operations. As of Friday, a total of VND 32.9 tn at 4% p.a were issued. At the same time, the second batch worth VND 69.7 tn in the form of SBV bills and VND 10 tn of reverse repos came to expire, and there was VND 13.1 tn of SBV bills rolled over to the next 28 days, at a slightly higher winning rate of 3.7% p.a. Outstanding bills and reverse repos were VND 66.45 tn and VND 32.9 tn as of Friday. All together, the SBV pumped VND 79.5 tn into circulation. Similarly, overnight interbank interest rates spiked again, to 5.0% in the first half of the week, then sliding to 4.2% (unch WoW) as of Friday.

Given a stronger greenback strength (DXY +4.8% YTD) and monetary divergence theme (VND serves as a low yield currency), USDVND surges to historical highs, for the interbank, VCB-quoted, and parallel rate, representing a 4.8% YTD depreciation on average. Especially, the interbank rate moves towards the SBV intervention red line, and at the same time the VCB ask rate has been also up to the ceiling (+5% of the SBV reference rate), which clearly play a major factor on the SBV’s decision to intervene.

Though the SBV did step in to clear out exchange rate pressure by utilizing SBV-bill issuance at a higher rate from March, this time has been different from the Sep-Nov period last year. That said, the SBV has given a nod for the sales of FX reserves to commercial banks on April 19. Surprisingly, not a forward sale but a spot contract is notified at VND 25,450 but no volume has been made though there has been a small amount being registered.

Liquidity has been under pressure. The money market was quite active last week, with an overall pattern suggesting that systemic liquidity is under pressure. The SBV found it necessary to activate the 7-day reverse repo facility in open market operations in response to a liquidity shortage in the banking system on Friday, at a large volume of VND 10 tn at 4% p.a for one day. This time there were 2 large banks joining the bid, as per rumor on the street. At the same time, the first batch worth VND 75 tn of SBV bills and VND 8.5 tn of reverse repos came to expire this week, and there were VND 25.25 tn of SBV bills rolled over to the next 28 days, at a higher winning rate of 3.5% p.a. Outstanding bills and reverse repos were VND 123 tn and VND 10 tn as of Friday, and all together, the SBV pumped VND 51.238 tn into circulation for the week. As a result of liquidity constraint, overnight interbank interest rates spiked again, this time to 4.3% (+160 bps WoW) as of Friday.

The SBV has issued bills since mid-March as a tool to cool down exchange rate pressure

Liquidity maintained well for the most part in March (except for the month-end period) and the interbank interest rate dropped back to the sub-1% level for most of March

Deposit rates continue to decrease at most banks, but some small banks started to hike rates slightly

The USD/VND climbed to historical highs; further level of intervention is expected.

Government bond yields increased significantly in the secondary market.

Overnight rate cooled down as liquidity bottleneck cleared. The end-of-quarter variable continued to register an impact on the money market movement last week, and the SBV found it necessary to activate the 7-day reverse repo facility in open market operations in response to a liquidity shortage in the banking system. A moderate volume of VND 8.46 tn ($340 mn in USD terms) at 4% p.a has been issued, with only one bank participating in the bid. Rumor on the street has it that a large bank is that bidder, and it comes to no surprise as that’s what happened in early February as well. At the same time, there were still about VND 1.6 tn of 28-day SBV bills being issued. Outstanding bills were VND 164.3 tn as of Friday, and the first batch worth of VND 75 tn of SBV bills will expire this week, implying that equivalent amount to be back in circulation. 

Overnight rate surged on Friday. VND 26.5 tn (-62% WoW) worth of 28-day SBV-bills was issued last week, and winning rate ticked up gradually to 2.5% (+70 bps WoW) as of Friday. Outstanding bills reached VND 171.2 tn (67% of the peak during Sep-Nov 2023), and there will be one more week before the first batch reaches maturity. Liquidity in the system remained manageable for most of the week, and ditto for the overnight interbank rate, but the end-of-quarter cyclical factor again impacted money market movement on Friday as market participants closed out their books for the quarter. Not surprisingly then, the overnight rate briefly hit an outlier having surged to 2.7% (vs. 0.2% p.a in the week before).

Overnight rate dropped to lower-bound range. Another VND 69.7 tn (-7.1% WoW) worth of 28-day SBV-bills has been issued last week, at an average rate of 1.35% p.a Mon-Thurs and then ticked up to 1.7% p.a on Friday. Outstanding bills reached VND 144.7 tn as of Friday (57% of the peak during Sep-Nov 2023). Liquidity in the system remains manageable, and the overnight interbank rate slid to 0.2% (-60 bps WoW) as of Friday, which is not the rate that the SBV aims for to limit FX outflows due to large USD-VND rate policy divergence. Weak credit demand is the key reason behind the slide in the interbank rate, but we might see there will be more volatility this week due to the end-of-quarter cyclical factor.

2024 marks the first year in the recovery phase for corporate bond market, in our view. On the supply side, we do think that companies with healthy balance sheets and sufficient cash flow might once again return to the corporate bond issuance market given the low-rate environment. Demand from institutional investors could rebound given the continuous need for yield seeking while retail investors might remain cautious to re-enter the market, given a stricter legal requirement and weak confidence.

With the help from the government, 2023 witnessed a calm end to a fairly tense year in the corporate bond market, and the soft-landing scenario in Vietnam appears to be underway. On the other hand, while the launch of the HNX secondary trading platform has provided some relief to jittery bondholders, we observed that market transparency has only slightly improved with limited public access to non-listed bond issuer financial information.

Reverse repos have been activated to stabilize exchange rate market. The SBV has resumed bill issuance, marking the first move since Nov 2023. Total volume was moderate, at VND 15 tn per day of 28-day bills at an average rate of 1.4% p.a. In total, the SBV temporarily withdrew VND 75 tn ($3 bn). Liquidity in the system remains manageable, and the overnight interbank rate only ticked up to 1.5% p.a in the first 4 days of the week and then lowered to 0.8% (unch. WoW) as of Friday.

Liquidity flow back to stability. There was no activity in the open market operations channel last week, while liquidity in the banking system has been well managed. Overnight interbank rates cooled down to 0.8% (-70 bps WoW) as of Friday, and average overnight interbank trading volume was also down to VND 270 tn from VND 330 tn the week before, reflecting lower demand for short-term liquidity.

The SBV issued reverse repos in mid-Feb to address a sudden liquidity shortage.

Banks actively utilized the interbank channel for liquidity. Overnight interbank rates surged to 4%, but then cooled down to a more reasonable level.

Deposit rates continue to decrease at some banks, and the gap between SoCBs and JSCBs (of all sizes) has narrowed significantly.

The gap between the official and unofficial USD/VND widened.

The STV issued the breakdown of annual plan, favoring the 5Y tenure. 14-day repo transactions have been activated to support liquidity

Government bond yields increased slightly in the secondary market.

Interbank interest rates back to more reasonable level. Liquidity in the banking system has been well managed after a week characterized by elevated pressure. There was no activity in open market operations, and a total of VND 6.03 tn ($243 mn) of 7-day reverse repos had expired, equivalent to a withdrawal of liquidity out of circulation. In terms of interbank interest rates, overnight interbank rates cooled down to 1.47% (-220 bps WoW) as of Friday. However, banks still aggressively participated in the interbank market to fulfill liquidity needs, and average overnight interbank trading volume remained elevated, at VND 337 tn (+5% WoW) for the week.

Interbank rate surged on the back of liquidity shortage. Liquidity in the banking system has been under pressure since last week, and open market operations are back into play. There was a total of VND 6.03 tn ($243 mn) of 7-day reverse repos utilized for 2 working days, and only one participant joined the bid for each auction. Afterwards, the OMO market started to normalize back  its way to returning back to a state of relative placidity.