Some Proposals To Develop Vietnam's Bond Market.

Treasury bills are issued in 3-month, 6-month, and 1-year terms through weekly auctions held on Mondays and paid on Thursdays. Since 1929, the US has not set fixed interest rates on Treasury bills.

3.2.3. East Asian bond markets

Throughout the 1990s, Asia was the focus of attention, with the decade starting on a positive note for most of the region’s high-growth economies. By 1997, the region was hit by a full-blown crisis that began in Thailand and spread to South Korea, Malaysia, Indonesia, the Philippines, Hong Kong and Singapore, but to a lesser extent. One of the reasons for the crisis was that in most Asian countries, banks played a dominant role in channeling domestic savings into investment, with the sector providing about 80% of financial debt, while the bond market accounted for just over 20%. For countries with developed economies such as Japan and Australia, this figure is 30-40%, especially up to more than 60% in the United States ( Source: vneconomy.vn/70490P7C708/thi-truong-trai-phieu-phat-trien-cach-nao.htm) . Too much foreign debt leads to the situation that when these investors withdraw their capital, Asian countries do not have cash to pay, which has caused many banks to go bankrupt. After the crisis, Asian countries realized the need for a more diverse capital market and especially a bond market with scale and depth to better support the long-term investment capital needs of the economy. Long-term capital needs should be best satisfied by long-term investments of lenders in the form of stocks or long-term bonds. With efforts to reform and reorganize the financial system, build infrastructure, legal documents, improve macro policies... Asian stock market has had many positive changes. The infrastructure of secondary stock market in East Asian countries is being gradually built and improved. However, in the East Asian market, secondary transactions are heavily dependent on

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into the primary market. The activity of the secondary market tends to increase or decrease according to the primary market. In recent years, East Asian countries have made progress in market institutions. For example, Hong Kong has used a system of central money market units to perform clearing and settlement functions. Credit rating companies have also been established and put into operation in many countries. Countries have built a system of benchmark interest rates based on government bonds (especially interest rates on long-term instruments). Singapore issued 10-year bonds in 1998, Korea issued 10-year bonds in 2000, China issued 20-year bonds in 2001. Although there are many maturities for domestic currency bonds, liquidity tends to focus on short-term bonds [15; page 46].

The anticipated rapid growth of East Asia's GDP depends on continued implementation of sound macroeconomic policies and institutional reforms.

The reality of the development of the US and East Asian countries shows that although each country has different characteristics, they all have common strengths that our country needs to learn from:

- Modern infrastructure of the bond market, human resources, management level and high payment speed, strong development of the bond market on the basis of synchronous development of primary and secondary markets to develop bond liquidity.

- Government bonds hold a key position in the bond market, forming a standard interest rate, reflecting the actual supply and demand for capital in the market, serving as a reference for other interest rates in the financial market. Government bonds have the highest credit rating, with a risk level of nearly 0. The superior safety of bonds will attract investors to diversify their investment portfolio risks.

- The increase in foreign capital flows into securities investment is based on national prestige, open capital market, stable exchange rate, macroeconomic situation, achievements in foreign debt payment, and the country's growth potential.

- Perfecting the legal system, developing and improving the quality and efficiency of credit rating companies and non-bank investment organizations, improving the efficiency of the payment system...

3.3. Some proposals to develop Vietnam's bond market.

3.3.1. Stabilize the macroeconomic environment, encourage savings and investment

To promote investment in the bond market in particular and the stock market in general, first of all, the Government must stabilize the macro economy. A stable macro environment and controlled inflation will create peace of mind for the entire investment public in society. People can stabilize their lives, do business, and improve their living standards. From stabilizing their daily lives, they will be able to increase savings through bank deposits or investing in bonds and stocks, thereby promoting market development. A stable environment, production and business activities of enterprises will also be more favorable, enterprises will have a greater need for capital, encouraging them to diversify capital mobilization channels, one of which is the bond market. This is especially important in the period when the world economy and Vietnam are dealing with the current financial crisis.

To stabilize the macro economy, the State needs to have economic policies and monetary and financial policies suitable for each period, promote economic development, create more jobs and control inflation.

The State also needs to improve the efficiency of financial market operations by developing an information system to provide timely information between those with capital and those in need of capital; gradually transferring resources from the banking system and financial institutions to the capital market; enhancing the service provision capacity and financial capacity of financial intermediaries; loosening strict regulations on capital flow control so that capital flows can move to the most effective investment areas, bringing benefits to both borrowers and lenders.

3.3.2. Diversify types of bonds, increase market liquidity

Diversified bonds ensure different benefits for investors, will create many choices for investors, on the basis of which investors compare, analyze, evaluate and make investment decisions. This will stimulate and attract investors, promoting the bond market to be more vibrant.

For Government bonds

Diversifying the form of Government bonds , diversification is not only about issuing many types of Government bonds with many different terms but also must combine diversification in interest rates, types and methods of payment of principal and interest of Government bonds. Besides traditional types of Government bonds, the Government needs to develop some more types of bonds:

- Zero-coupon bonds, also known as discount bonds: are bonds that sell for less than their face value. Investors will receive accumulated profits in the form of capital gains when the bond matures.

- Multi-maturity bonds: bonds with different maturity dates.

- Partial payment bonds: this is a type of bond in which the interest is paid at maturity but the principal of the bond is paid in installments periodically every year. This type of bond will reduce the pressure of increasing interest and minimize the risk of reinvestment, increasing the safety for bondholders.

- Option bonds: allow the bond buyer to claim debt from the issuer at any time in the future.

- Variable interest rate bonds: their interest rates can be changed and adjusted from time to time when market interest rates fluctuate, ensuring positive real interest rates for investors because of the interest rate target. This type of bond will attract investors who enjoy interest rates and attract investors who enjoy price differences, promoting the vibrant operation of the government bond market.

Issuance method : The plan for issuing government bonds needs to be built in a unified and scientific manner and avoid overlapping and cancelling each other out between issuances or between issuance methods. Promote the issuance of government bonds through bidding and underwriting methods, however, there should be a division of issuance volume for each method according to bond maturity, avoiding the situation where issuances take place too close together, reducing the effectiveness of the issuances. On the other hand, when issuing government bonds through bidding through the stock market, it is necessary to limit the subjective imposition of interest rates.

In addition, to create a standard yield curve for the market, it is necessary to establish a plan for issuing Government bonds, choosing the type of Government bonds with appropriate terms to focus on issuing large lots to create standard issued Government bonds and form a standard yield curve, creating a basic foundation for standard interest rates for debt instruments. Promoting the issuance of large lots of Government bonds will reduce the number of types of Government bonds circulating in the market, helping investors as well as intermediary organizations to easily monitor and grasp the price movements of Government bonds. At the same time, gradually reduce and end the retail issuance through the State Treasury system.

Interest rate mechanism , the Government should apply floating interest rates for government bonds. To increase the attractiveness of government bonds, it is necessary to apply inflation-adjusted interest rates and apply flexible interest payment methods such as prepayment, periodic interest payment, etc. so that investors can minimize risks and diversify their investment portfolios. Build an interest rate mechanism that is truly attractive to investors even in inflationary conditions.

inflation or deflation to maximize investor profits on the basis of reconciliation with the Government's interests.

For corporate bonds

In fact, the corporate bond market accounts for only over 10% of the Vietnamese bond market. The participation of domestic enterprises in the bond market is only the first steps on a small scale, so initially, Vietnamese enterprises have only issued bonds to the domestic market and mainly choose the form of private issuance, meaning that enterprises can negotiate directly with capital suppliers. Regulations on conditions for enterprises to issue private bonds are also simpler than those for enterprises wanting to issue bonds to the public. Currently, there are two main types of corporate bonds issued: fixed interest rate, paying interest annually (coupon interest rate) and floating interest rate according to market interest rates. Except for some banks that issue bonds that can be converted into shares such as the Military Bank or the Foreign Trade Bank. In the context of Vietnam's economy strongly integrating into the world economy, being increasingly affected by macroeconomic fluctuations from the US economy or Asian countries, ensuring the relative stability of bond prices is an important condition to attract investors. To develop the corporate bond market, there needs to be reforms from the Government and businesses.

The Ministry of Finance needs to have stronger reforms in policy and technical mechanisms to support businesses, focusing on disseminating and training businesses on capital mobilization methods, fund management experience... To develop the corporate bond market, we must first develop the government bond market.

The State accelerates the equitization process of state-owned enterprises. There should be policies to encourage state-owned corporations to issue bonds to mobilize long-term capital investment for technological innovation and product creation.

for the stock market. In the immediate future, sectors such as aviation, electricity, oil and gas, and post and telecommunications are sectors in which the economy is currently in dire need of increased investment and development to create momentum for industrialization.

For businesses to be successful in issuing bonds, they need to develop a plan to mobilize and use capital effectively to ensure solvency and create attractiveness to investors as well as ensure the interests of the business. To do so, businesses need to do well a number of issues:

- First of all, businesses must build a long-term development strategy that includes capital mobilization. Businesses need to determine the need and purpose of capital mobilization, and need to link capital mobilization with capital use.

- Second, good treasury management is a complex issue. Businesses must simultaneously raise a large amount of capital; pay off debts and have money to produce and do business or to invest.

- Third, the disclosure of information related to bond issuance must ensure transparency to create trust among investors.

In addition, to increase attractiveness and diversity, enterprises can issue bonds that can be converted into shares or bonds with purchase rights; to ensure stability in the face of economic fluctuations, enterprises can issue bonds with gold-backed interest rates or real interest rates guaranteed to be positive in the event of high inflation to attract investors. The development of the corporate bond market is meaningful for enterprises in improving their capital mobilization capacity, increasing flexibility in capital management, and increasing the ability to accumulate, concentrate and distribute low-cost capital sources for Vietnam's economic development at the present stage.

3.3.3. Developing market makers to promote bond market activities

In the context of the infancy of the capital market, the formation and development of a team of market makers is necessary. There needs to be a team of competent experts to advise the Government to build a policy of synchronous coordination between capital mobilization channels. In order to build a team of market makers with strong financial potential, ready to buy and sell a certain amount of bonds when requested by investors, there needs to be a policy to encourage commercial banks and insurance companies with large financial potential to participate.

It can be said that commercial banks are still considered the main market makers in the future, along with insurance companies or securities companies. Currently, these candidates are still busy with brokerage activities or securities trading or consulting on enterprise equitization. They have not yet found the motivation to become bond market makers. Legal documents need to be issued to encourage these candidates to become market makers. In the context of the stock market sinking to the bottom in recent months, promoting the development of the "dormant" bond market is becoming more urgent.

Specialists can also become "market makers" for a particular security under strict control. This control will limit violations if they abuse their monopoly power on the Exchange. In addition, market makers tend to compete with each other because there are always many market makers for a security, so the OTC market is considered to have better self-regulation than the centralized securities trading market. Both securities specialists and market makers have access to special information because they often have direct access to information on the order book, so they are more likely to "leak" information when there is market volatility.

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