Research Center

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.

Excess liquidity in the banking system, due to a slowdown in bank lending, has been driving interbank rates and G-bond yields to historic low levels, of which some rates have stayed near-zero level for a long time. However, a surge in credit growth in November may give an early signal that liquidity conditions in the banking system would not as easing as before, which could reverse a super low-rate environment in the fixed-income markets.

In October, interbank rates and bond yields continue to stay at historic lows as the current liquidity condition remains abundant. Looking forward to November, in the scenario that lending activity accelerates under the favorable seasonal effect in the fourth quarter, we expect interbank rates and G-bond yields to pick up from the bottom.

Recent monetary easing decision from SBV is expected to maintain the interbank rates at a low base in 4Q20. In the context of cheap liquidity flooding to banks and lending activity remaining sluggish, demand for Vietnam G-bonds was rocketing to an all-time high in the primary G-bond market. Looking forward to October, we expect the interest bank rates to remain stable at low levels, while abundant liquidity will put further downward pressure on G-bonds from 5-year to 15-year tenors.

Recent developments in the interbank market and G-bond markets continue in August as interbank rates and G-bond yields remain extraordinarily low. Subdued credit growth, from our view, is the main factor behind that downward trend. We maintain our view that these ultra-low interest rates would be reversed if the first lending market started to pick up.

Sluggishness in banking lending activity excites participants in the money and G-bond markets due to high uncertainties in the business conditions. As a result, interbank rates and bond yields continued to stay low along with increasing trading activities. We predict that the situation will continue to happen in the next month until the first lending market picking up.