Derivatives essential for ensuring progress in volatile bond markets

HA NOI (Homeid)— There are virtually no derivatives in the Vietnamese bond market, says Vietnam Bond Market Association general secretary Do Ngoc Quynh.

 

A customer makes a transaction at HDBank in Ha Noi. Derivatives drew participation of large domestic banks. However, there were no derivatives in the bond market. — VNA/VNS Photo Tran Viet

 

Derivatives include four main instruments: forward contracts, swap agreements, futures contracts and option contracts.

Quynh told a conference in Ha Noi that while derivatives were connected with the development of the bond market, there were few derivative instruments in Viet Nam.

Quynh said the scale of the local bond market was relatively small and liquidity focused on bonds with maturities of less than three years.

"At the same time, because derivatives are not applied, investors have no hedging products when the market is volatile."

In the Vietnamese market, investors often bought debt instruments with floating rates and the transactions took place in the short term, Quynh said.

"Consequently, they face two major risks of interest rate and exchange rate."

Quynh backed Viet Nam's plans for derivative products and recommended the legal system for bonds and derivatives.

"I hope with the Government's restructuring proposals for the stock market, investors will invest in bonds for the long term," he said.

After more than 10 years, derivatives were still in an infant stage, but the benefits to the economy were very promising, he said.

Most derivatives were currently on off-exchange trading. Participants in the market were mostly foreign banks, large domestic banks and foreign-invested companies.

Meanwhile, derivatives were essential for businesses, especially exporters who suffered from price fluctuation risks.

For banks, derivatives helped diversify products to satisfy customer needs, thereby improving operational efficiency.

The draft decree on derivatives was expected to be finished by the end of this year. — VNS

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