Research Center

Current developments of the fixed-income markets are closely attached to increasingly abundant liquidity conditions in the banking system. Interbank rates are hitting their several-month lows since 2Q21, while government bond yields are in a free fall to new record lows. As long as credit activity remains subdued and the economy is still dealing with stagnation, a prolonged period of low rates continues to stay in place in the fixed-income markets.

More easing banking liquidity conditions helped drive interbank rates and government bond yields to be lower in July, in which G-bond yields were nearing their record lows. Looking forward to August, in the context that credit demand is weakening due to subdued economic conditions and VND supply is increasing, this would be a favorable environment for fixed-income markets. Given those developments, we expect long-term yields to hit their new record lows.

Fast-increasing demand for government bonds took the spotlight in the fixed-income markets in June with medium-term and long-term yields again testing their record lows. However, July would bring a new story to the FI markets. A new wave of huge VND inflows back into the banking system, via USD-purchasing forwards and incoming support envelope, would likely change the current interest-rate environment to be lower. Short-term interest rates and bond yields are expected to see the very first changes.

In May, improved credit activity helped create tightening pressure on the banking system's liquidity, resulted in higher short-term interest-rate conditions in the interbank and G-bond markets. Looking forward to June, under uncertain business conditions unfavorable for credit growth, we expect the pressure on the banking liquidity to be loosened in June. Furthermore, State Treasury short-term deposits, which have launched in early June, would also enhance the liquidity conditions and lower short-term interest rates and yields.

A shortage in banking liquidity caused interbank rates and short-term yields to increase markedly in April. However, this seasonal liquidity shortage during a long holiday combining with SBV signaling control to banking credit activities would make recent increases in short-term rates end soon. Besides, we expect long-term yields to remain around the current levels under a gloomy outlook for CPI.

After experiencing high volatility last month, the money and government-bond markets backed to normalization in March with improved banking liquidity. Interbank rates again stayed at low levels, while long-term yields saw loosening upward pressure. We expect that this trend would be ongoing in April, and interbank rates and G-bond yields would likely move in a tight range.

Ongoing developments in the interbank and G-bond markets showed more tightening liquidity conditions than previously, which resulted in upward pressure on interbank rates and G-bond yields. From our perspective, rising inflation, global G-bond yield hikes, and improving lending activity are potential drivers for interbank rates and G-bond yields to increase further in March.

Due to the lending activity accelerating in 2020-end and high demand for cash just before the New Year’s period, short-term fixed-income rates were facing great upward pressure by late-January. Interbank rates and short-term G-bond yields were breaking a multi-month downward trend in the month. From our perspective, the interbank and G-bond markets will continue to face liquidity shortage temporarily, which in turn push those corresponding rates to higher levels in February.

A sustained low-rate environment in the fixed-income markets continued to a greater extent as interbank rates and G-bond yields plunging further. However, phenomenal lending growth recently, and likely continue in the near term, will put massive upward pressure on the interbank rates and short-term yields in January.