Rising dollar funding costs are forcing the Vietnamese government to reconsider a $3 billion global debt sale as a looming U.S. interest-rate increase threatens to further inflate yields.
“We are watching current movements of financial markets and see that it’s not a good time to sell bonds abroad now,” Finance Minister Dinh Tien Dung told the National Assembly in Hanoi in an address broadcast on television Tuesday. The ministry will increase domestic sales instead via longer maturities to fund a budget deficit that’s exceeding the year’s target, he said.
The National Assembly last month approved the plan to sell global bonds to refinance government debt due this year and next, but Dung said he will now ask Prime Minister Nguyen Tan Dung to postpone it.
The shortfall between revenue and spending has widened to about 5.5 percent of gross domestic product in 2015, compared with the official goal of 4.5 percent, as income from taxes and oil falls, Dung said. Meanwhile, expenditure on wages, infrastructure and national defense has increased, he said. The odds of a hike in U.S. rates by the Federal Reserve at its last meeting of 2015 in December have climbed to 68 percent.
Vietnam sold $1 billion of 10-year dollar debt in November 2014. The yield has increased 66 basis points from a three-month low reached on Oct. 19 to 5.45 percent, according to data compiled by Bloomberg. That’s above the average of 4.68 percent since the notes were issued.
Opting to sell in the domestic bond market could be more costly, with yields on local-currency 10-year debt at 7.16 percent, according to a daily fixing by banks compiled by Bloomberg. Five-year notes were paying 6.7 percent.