Developing the domestic government bond market country experiences and suggestions for vietnam

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS, HO CHI MINH CITY FULBRIGHT ECONOMICS TEACHING PROGRAM VO CHAU THUY TRIEU DEVELOPING THE DOMESTIC GOVERNMENT BOND MARKET: COUNTRY EXPERIENCES AND SUGGESTIONS FOR VIETNAM Major: Public Policy Code: 60340402 MASTER OF PUBLIC POLICY THESIS SUPERVISOR Dr Jonathan R Pincus Ho Chi Minh City – 2013 CERTIFICATION I hereby certify that - I wrote the thesis by myself - the study has not been submitted for any other degrees - any help I received as well as all sources used have been acknowledged in this thesis with the best of my knowledge - the study does not necessarily reflect the views of the Ho Chi Minh City Economics University or Fulbright Economics Teaching Program Author Vo Chau Thuy Trieu Table of Contents CERTIFICATION ABBREVIATIONS LIST OF GRAPHS .5 ABSTRACT Chapter INTRODUCTION 1.1 Background .7 1.2 Policy questions 10 Chapter LITERATURE REVIEW 11 2.1 Financial repression is ineffective for the economy 11 2.2 Benefits of a developed domestic government bond market 13 Chapter COUNTRY EXPERIENCES 16 3.1 How did Malaysia develop their domestic bond markets? .16 3.1.1 Situation and motivation for reform 16 3.1.2 Key policies 18 3.1.3 Achievements 21 3.2 How did Thailand develop its bond market? 23 3.2.1 Situation and motivation for reform 23 3.2.2 Key policies 25 3.2.3 Achievements 29 Chapter VIETNAM 31 4.1 Developing the bond market is important for Vietnam 31 4.2Vietnam government debt market overview 32 4.3 Types of government debt securities .36 4.3.1 Government bonds 36 4.3.2 Government-guaranteed bonds 37 4.3.3 Municipal bonds .37 4.4 Investors base 37 4.5 Factors hinder Vietnam’s domestic government bond market 38 4.5.1 Interest rate cap 41 4.5.2 Statutory liquidity ratios of banks 43 4.5.3 Primary dealers .43 4.6 Suggestions for Vietnam’s bond market 44 Chapter CONCLUSION 46 REFERENCES 48 ABBREVIATIONS BTH: Thailand Bath HNX: Hanoi Stock Exchange HSX: Ho Chi Minh City Stock Exchange MOF: Ministry of Finance OMO: open market operations SBV: State Bank of Vietnam USD: U.S dollar VND: Vietnam dong LIST OF GRAPHS Graph 3.1: Bond outstanding value of Malaysia Page 22 Graph 3.2: Domestic financing profile of Malaysia 23 Graph 3.3: Size of Thailand financial market .24 Graph 3.4: Financing profile of Thailand (% GDP) 29 Graph 3.5: Regional Government bond turnover ratio 30 Graph 4.1: Bank credit to GDP of regional countries .31 Graph 4.2: Vietnam bond outstanding value 34 Graph 4.3: Vietnam domestic bond issuances 35 Graph 4.4: Vietnam GDP growth and inflation rate 39 Graph 4.5: Regional bond market size in % GDP 40 Graph 4.6: Regional countries’ government bond bid-ask spreads 41 Graph 4.7: Vietnam government bond auctions over years 42 ABSTRACT While other countries use open market operations (OMO) as an indirect instrument to manage the liquidity in the economy to steer market interest rates, Vietnam has to use direct instruments of interest rate control which have been proved inefficient for the economy After reviewing papers on using OMO to implement monetary policies of countries in the world, the thesis finds that Vietnam is lacking a vibrant domestic government bond market to facilitate the conduct of OMO Vietnam’s conventional secondary government bond market is just seven years old and the country’s government debt market is just beginning to develop By looking at the experiences of countries in the region which have similar features to Vietnam’s domestic bond market, this thesis aims to derive lessons to help improve and boost the development of the domestic government bond market This paper goes through the development of government bond markets in Malaysia and Thailand when they were at the first stage of developing their bond markets twenty years ago in order to discover key policies to promote the bond market From that result, the dissertation considers whether these measures can apply to Vietnam The main recommendation is for the government of Vietnam to set up a primary dealer system facilitating bond auctions and trading as well as supporting the conduct of open market operations, to build a market-based benchmark yield curve and provide tax exemption to government bond investors Chapter INTRODUCTION 1.1 Background Transition to indirect instruments: global trends Inflation control is among the top priorities of every government Controlling inflation requires careful management of the money supply by the central bank Central banks possess three main indirect instruments of reserve requirements, discounting eligible bank assets, and open market operations (OMO) However, Mishkin (1995, 540) argues that OMO has more advantages than the other two in implementing monetary policy Thus, using this instrument has become a common trend in the developed countries Country experiences show that indirect instruments especially market-based operations have brought greater benefits for economies than direct tools whether in developing or developed countries The benefits are mentioned by William et al (1996), in which the authors state that “They [indirect instruments] permit the authorities to have greater flexibility in policy implementations Small, frequent changes in instrument settings become feasible, enabling the authorities to respond rapidly to shocks and to correct policy errors quickly.” Meanwhile, direct instruments including interest rate controls, credit ceilings, and directed lending often lose effectiveness because economic agents find means to go around them, according to the paper Research on implementing monetary policies has shown that there has been a clear trend of switching to using indirect instruments and then a greater reliance on market-based operations since the 1970s given the advantages of market-based instruments Buzeneca and Maino (2007) find that direct instruments of monetary policy are no longer used in the majority of countries and there is a trend towards reliance on indirect instruments especially on open market operations In the 2004 survey of IMF of 45 central banks around the world, there is no developed country using direct instruments while a few developing countries still use them Meanwhile, the ratio of emerging market economies and developing economies using market-based instruments has increased compared to results in the 1998 survey Vietnam: delaying the trend Thus the transition to greater reliance on market-based operations, particularly open market operations, in implementing monetary policy is a global trend which is relevant to Vietnam The country liberalized interest rates in 2002 and since 2000 has introduced open market operations in conducting monetary policies However, Vietnam’s transition has been delayed Since 2008 the State Bank of Vietnam (SBV) has reintroduced direct or administrative instruments to implement monetary policy The year 2007 saw a boom on the stock market that was mainly caused by a massive inflow of foreign capital, equal to about 18 percent of GDP SBV was unable to sterilize these inflows, with the result that money supply increased sharply According to World Bank data, net foreign portfolio investment strongly increased from USD1.31 billion in 2006 to USD6.24 billion in 2007 Stock market capitalization increased from three percent of GDP in December 2005 to 43 percent of GDP by March 2007, according to World Bank (2009, 90) In addition to the price bubble on stock and property markets, the rapid increase in money supply contributed to price inflation which peaked at 28 percent per annum in 2008 High inflation led to rising nominal lending rates which hindered enterprises’ access to bank loans In 2008, SBV tried to use indirect instruments of raising policy rates and reserve requirements, aiming to rein in the inflation However, it did not have much effectiveness since banks had considerable excess stocks of reserves (Riedel and Pham 2012).The central bank therefore had to use the direct instrument of the ceiling rates again and also forced banks to buy central bank bills totaling VND20.3 trillion in March 2008 The central bank wanted to restrain inflation at that time but also wanted to decrease nominal interest rates as instructed by the government, so they officially came back to direct monetary instruments by asking banks to set lending rates within the band of 150 percent of the prime rate set by SBV By May 16, 2008 the central bank issued directive 16/2008/QD-NHNN on the prime rate managing mechanism, ending the period of six years of interest rate liberalization However, as large amounts of money were withdrawn via central bank bills, many banks experienced a liquidity shortage and had to raise deposit rates which in turn pushed nominal lending rates higher Banks competed with each other to attract deposits, which also put upward pressure on lending rates for enterprises Stricter administrative instruments from the central bank to punish banks breaking the rule were applied The central bank even set up a hot line to receive information about banks giving loans at rates higher than the ceiling level Inflation has become the biggest threat to the Vietnamese economy since 2008, except in 2009 during the global recession Given the lower inflation rate in 2009, SBV let banks negotiate lending rates in 2010 However, when high inflation rose again in 2010 and 2011 prompting a rise in interest rates, the central bank came back to administrative controls again in 2011 aimed at decreasing market lending rates These measures have continued until the end of 2012 as banks have to give loans at rates no higher than the ceiling given by the central bank SBV in fact used two indirect instruments of required reserve ratios and lending facilities to rein in inflation - but they didn’t help much The reason is that Vietnam has maintained a pegged foreign exchange rate regime and does not have an independent monetary policy, according to Riedel and Pham (2012) Theoretically, there are three things that cannot happen at the same time, namely free capital inflows, pegged exchange rate, and independent monetary policy Vietnam received massive foreign capital inflows in 2007 and still wanted to peg its foreign exchange rate to support exports, so its monetary policies cannot have effectiveness as the central bank’s purposes For example, large foreign capital entering Vietnam has made local currency stronger To keep the foreign exchange rate stable, the central bank had to buy foreign capital and supply money to the economy which put pressure on prices Meanwhile, Vietnam could not rely much on open market operations to manage the money supply, or in this case sterilize the unexpected increase in money supply, like other countries with developed financial markets Because Vietnam’s domestic bond market was too small relative to the capital inflow and liquidity in the secondary market was low, the government could not sterilize its foreign exchange operations 36 Transparency is a very important factor in the development of the financial markets including the government debt market BIS (2002, 72) says a transparent market which disseminates pre-trade and post-trade information to traders can help lower spreads, improve efficiency, and attract more participants by increasing confidence in the pricing process The government should announce the issuance calendar and maximum information about completed auctions in advance Understanding the importance of transparency in the development of the debt market, the Ministry of Finance of Vietnam in the Circular 17/2012/TT-BTC issued in February 2012 says that the ministry will provide an annual debt issuance plan as well as expected issuance plan for each quarter of the year based on annual budget needs, and this information will be published on the websites of the finance ministry, the State Treasury, and HNX 4.3 Types of government debt securities There are three categories of government bonds in terms of issuer: they are government bonds, government-guaranteed bonds, and municipal bonds These kinds of government bonds can be bought and sold in open market operations under the central bank’s regulations 4.3.1 Government bonds There are two kinds of government bonds, namely long-term and short-term bonds Longterm government bonds or treasury bonds are issued by the MOF through the State Treasury under two methods of auction and underwriting Most are issued by auction Government bonds usually have tenors longer than one year while treasury bills (T-bills) have tenors less than 52 weeks Long-term bonds include treasury bonds and investment bonds having terms of 2, 3, 5, 10, 15, and 30 years However, three-year and five-year tenors are currently the most popular In 2011, the Government raised VND22.68 trillion in five-year treasury bonds and VND30.12 trillion in three-year treasury bonds Bond investors tend to prefer short-term treasury bonds given recent macro uncertainties of Vietnam Before August 2012, T-bills were not traded on the Hanoi exchange and were only available to commercial banks However, by late June 2012, MOF and the State Bank 37 of Vietnam (SBV) issued Circular 106/TTLT-BTC-NHNN that allowed T-bills to be traded on the electronic trading system of HNX Since then, T-bills have been issued by the State Treasury under authorization of the MOF by auction via the main transaction office of SBV and all institutions which meet requirement of MOF regulated in the Circular 17/2012/TT-BTC can join the auctions T-bills have three tenors of 13, 26, and 52 weeks In developed countries like the US, T-bills are the main instrument for open market operations Developing a liquid T-bills market plays an important role for the transition to open market operations in implementing monetary policies Allowing T-bills to be traded on the electronic trading system is an effort of Vietnam Government to create a liquid market for this instrument The HNX now publishes a daily report on T-bill trading on its website Government bonds also include central bank bills After issuing compulsory central bank bills in early 2008 to quickly withdraw money from the market to rein in inflation, the State Bank of Vietnam in 2012 issued central bank bills again with terms of one, three, and six months in order to mop up redundant credit from commercial banks 4.3.2 Government-guaranteed bonds Government-guaranteed bonds are issued by corporations like State-owned companies or banks to mobilize funds for projects that the Government wants to invest in There are three institutions that usually issue bonds guaranteed by the Government, namely the Vietnam Development Bank, the Vietnam Bank for Social Policies, and the Vietnam Express Corporation that raise fund for public projects approved by the Ministry of Finance 4.3.3 Municipal bonds Municipal bonds are issued by provincial governments to finance works or projects at the local level At present only Ho Chi Minh and Hanoi are active issuers of municipal bonds 4.4 Investors base Vietnam’s regulations not limit who can hold and trade government debt securities, including foreigners Even individuals can invest in government bonds, government- 38 guaranteed bonds, and municipal bonds which are traded on the HNX by trading through exchange members They just need to open a trading account at a securities company which is a member of the HNX and have enough money to buy bonds The secondary government bond market in Vietnam is dominated by commercial banks which want to hold government bonds to ensure liquidity for their operations In 2011, HNX reported that the top ten members by proprietary dealing of bond trading were all commercial banks, which traded VND85.17 trillion in total, more than 86 percent of the total trading value of government bonds (HNX 2011) Taxes are imposed on investors in the bond market in Vietnam For individuals, when selling securities, investors can choose one of two options: either a tax equal to 0.1 percent of the sale value of bonds on the transaction date or 20 percent of the premium coming from the difference between the total buying and selling value over one year Most individual investors choose the first method to avoid paper work For institutions selling bonds, a tax of 0.1 percent of the sales value is levied at the time the transaction is made In addition, capital gains tax is also applied, which is five percent for individuals and 0.1 percent for institutions on the total bonds’ face value and coupon.11 4.5 Factors hinder Vietnam’s domestic government bond market It should be clear that Vietnam’s government bond market has taken the very first steps on its development trajectory, much like the bond markets in Malaysia and Thailand after the financial crisis in 1997 Although Vietnam has made some progress, conditions are still similar to the two regional countries more than 10 years ago Vietnam has just passed through a period of macroeconomic turbulence that began in 2007 with an asset bubble in stocks and real estate Since then, the country has experienced high inflation and slow growth, especially in 2008, 2010, and 2011 Investors’ confidence has been negatively affected and country has been downgraded continuously by international credit rating agencies There has been an outflow of foreign exchange, which has resulted in strong downward pressure on the exchange rate and exacerbated the loss of confidence 11 http://hnx.vn/web/thi-truong-trai-phieu/huong-dan-dau-tu# 39 More recently, a sharp rise in non-performing loans of commercial bank has also contributed to the gloomy outlook of Vietnam’s economy Graph 4.4: Vietnam GDP growth and inflation rate Vietnam GDP growth and inflation rate (%) 25 20 15 10 2005 2006 2007 2008 Infaltion(annual %) 2009 2010 2011 2012 2013 GDP growth (annual %) Source: World Bank Data (2012 data comes from General Statistics Office) Government securities dominate the domestic debt market The total trading value on the government bond market of Vietnam in 2011 was VND90.2 trillion, averaging VND363.8 billion (or USD18.2 million) per session The daily traded value on the government bond market is still much lower than the daily trading value of government securities in Malaysia in 2001 (USD179.4 million) and of Thailand in 1999 (USD37 million), BIS (2002) In addition, size of the local currency bond market relative to GDP is low compared to other countries in the region 40 Graph 4.5: Regional bond market size in % GDP Size of domestic bond markets in % of GDP 250 200 150 Corp Govt 100 50 CN ID JP KR MY PH SG TH VN Source: Asianbondsonline One measurement of the liquidity of the debt market is the bid-ask spread From 2007 to 2011, the spread of government bond trading on the market ranged from 13 to 33 basis points, and up to 75 basis points in 2008 Meanwhile, the bid-ask spread of government bond trades in Malaysia from 2000 to 2012 was only two to five basis points, excepting 2008 when it rose to 12 basis points For Thailand, except in the three years 2004, 2007, 2008 - when the bid-ask spread on government securities trades was seven, six, and ten basis points respectively - the spread in the years in 2000-2012 was only around three basis points.12 Those figures show that government bond market’s liquidity in Vietnam is low compared to other countries in the region 12 Data on Asianbondsonline.adb.org 41 Graph 4.6: Regional countries’ government bond bid-ask spreads Govt bond bid-ask spreads of regional countries 100 90 CN 80 HK 70 ID 60 KR 50 MY 40 PH 30 SG 20 TH 10 VN 2000 2007 2012 Source: Asianbondsonline (Vietnam data in 2000 not available) 4.5.1 Interest rate cap In May 2008, after six years of interest rate liberalization, the central bank officially came back to direct interest rate control measures in Directive 16/2008/QD-NHNN and then a series of circulars on interest rate ceilings through 2013 The interest rate cap has been issued with the purpose of reducing competition for funds among banks that need liquidity The interest rate ceilings in fact did not reflect the prevailing market rate Meanwhile, bond yields on government securities must be within a band regulated by the Ministry of Finance under Circular 17/2012/TT-BTC, meaning that the maximum winning bond yields in bond auctions cannot exceed the ceiling yield given by the ministry at the issued time It should be understood that as the government risk is almost zero and much lower than commercial bank risk, that means fund raising cost of the government cannot be higher than banks’ deposit rates, or the government’s bond yields cannot exceed banks’ ceiling rates set by the central bank The banks’ ceiling rates were lower than the market rates, thus bond yields have not been market-determined, which was one of factors making investors refrain from involvement in the government bond market The results of 42 government debt securities auctions during the period 2008-2012 were often unsuccessful with the total winning bid value accounting for only 36.2 percent of the offered value Investors expected higher yields than the maximum allowed by the regulator For example, two-year government bonds offered in 2012 totalled VND57,100 billion, and total registered value was VND81,383 billion, but the winning value was only VND31,740 billion, just more than half of the offered volume Bidding yields ranged from 8.73 to 13 percent per year while the maximum winning yield was only 10.8 percent This year, the ceiling deposit rate given by the central bank was 11 percent These figures showed that investors were interested in government bonds but they did not agree with the regulated bond yields Graph 4.7: Vietnam government bond auctions over years Government debt securities auctions (VND billions) 2012 2011 Offer 2010 Register Winning bid 2009 2008 - 50,000 100,000 150,000 200,000 250,000 Sources: calculating from data in HNX (2008-2011) and 2012 auctions data on HNX When prices are not set by the market, few investors are willing to trade, which affects the liquidity of the secondary bond market In addition, it is difficult to build a government bond benchmark yield curve based on market prices when the government caps yields 43 4.5.2 Statutory liquidity ratios of banks Commercial banks, the biggest holders of government bonds, not have to hold a specific ratio of their assets in government securities, but they must hold government bonds to ensure that they meet the capital adequacy ratio (CAR) of nine percent in Vietnam based on Basel II Government bonds have a risk ratio of zero under the regulations, which helps banks maintain their CAR at the required level In addition, banks also have to ensure the payable capability ratio of 15 percent at the end of each day and government securities are among the most liquid assets under Circular 13/2010/TT-NHNN on safe ratios for commercial banks Government securities can also be used as collateral to access the central bank’s refinancing and discount operations Therefore, big banks which have abundant liquidity tend to buy government debt securities while small banks, which have limited liquidity and must mobilize capital at higher cost than big banks, prefer investments with higher returns like giving loans This fact partly hindered small banks from joining the primary and secondary bond markets, especially when interest rates are regulated directly by the central bank to ensure stability Meanwhile, big banks holding large amount of government bonds not have many chances to trade bonds in an illiquid secondary market 4.5.3 Primary dealers Vietnam’s Ministry of Finance has established some criteria for institutions that want to take part in government bond auctions and to register as bond trading members on HNX The list is reviewed annually However, they are not primary dealers as in Malaysia and Thailand and criteria for membership are not as stringent as in other countries where primary dealers act as market makers for bonds In Vietnam, bond auction members and bond trading members not have to give two-way quotations on bond yields of some key maturities everyday or ensure a minimum bid volume in auctions and trade actively They also not enjoy privileges from the central bank as in the other countries, such as access to the central bank’s discount window facility, or borrowing and lending securities at the central bank Therefore, the bond market’s members not help much to enhance the secondary market’s liquidity in Vietnam 44 4.6 Suggestions for Vietnam’s bond market Setting up primary dealer system Many countries have used the primary dealers to promote the bond market as they can guarantee success of bond auctions, improving liquidity on the secondary bond market by giving two-way quotes and actively trading on the market As in Malaysia and Thailand, primary dealers can also help the central bank conduct open market operations to manage the liquidity of the financial system Therefore, the government should consider setting up a primary dealer system In fact, the Ministry of Finance stated its intention to so and criteria for bond auction members and trading members regulated by the ministry were partly set out 13 The central bank or Ministry of Finance can choose some banks and securities companies which have a strong financial position and have been active on primary or secondary markets over past years to be primary dealers or market makers for domestic government bond markets The obligation of primary dealers should be to ensure a minimum amount of bids on the primary market with reasonable yields and to give the two-way quotes everyday on each maturity Their privileges should include access to the central bank’s discount window, and as in Malaysia they should be able to borrow securities from the central bank to short sell However, it needs to have transparent and clear regulation on this risky operation especially when Vietnam has not allowed short selling yet Vietnam also has a repo market which supports open market operations as in Thailand, and Vietnam can learn from the experience of Thailand in promoting the private repo market To this, the central bank initially should act as a matchmaker connecting borrowers and lenders of government securities to encourage active trading on the market However, the central bank will in parallel run the bilateral repo market with primary dealers When the private repo market’s liquidity develops to a certain level, the central bank can phase out and only make repo trades with primary dealers to affect the market’s liquidity indirectly 13 http://www.mof.gov.vn/portal/page/portal/mof_en/dn?p_page_id=2522361&item_id=2739929&p_details=1 45 Building a market-based benchmark yield curve A pre-requisite for the development of the bond market is a trusted benchmark yield curve built on diverse maturities of government securities which reflects market conditions of supply and demand However, due to interest rate controls in Vietnam, it is not easy to set up a market-determined benchmark yield curve To have an ideal benchmark yield curve, the government must restructure the economy including the banking system in order to stabilize the economy and strengthen the banking system as well as gradually shift to indirect control over interest rates In the meantime, the country must accept the distorted benchmark yield, and when the interest rate is liberalized, the yield will go toward the market equilibrium BIS (2002, 65) argues that benchmarks not only help to increase liquidity of the bond market but also help to reduce the servicing cost for the government And one measure mentioned in the paper which has been used by many countries to develop benchmarks is to concentrate issuance on some important maturities, about four to seven Vietnam’s Finance Ministry should consider focusing on issuing debt securities at some liquid maturities like three and five years to establish a benchmark and have plans to reissue the same of amount of bonds issued earlier Taxation As the size of bond market in Vietnam is relatively small with a limited number of investors, there should be tax exemption to encourage investors to join in the market Malaysia and Thailand did not impose taxes on bond investors in the past to develop the debt market Malaysia has still maintained the tax exemption for bond investors until now 46 Chapter CONCLUSION This paper has outlined the brief and unsuccessful history of OMO implementation in Vietnam that has led back to the adoption of direct instruments of interest rate ceilings and limitations on credit growth by the State Bank of Vietnam All of these measures are still in effect Study of the implementation of monetary policies shows that Vietnam is lacking a liquid and deep government bond market which is the most important component of an effective OMO In addition, the underdeveloped debt market has also prevented the central bank from using the tools of open market operations to conduct monetary policies Thus the paper has set out to identify the obstacles to Vietnam’s bond market development by comparing the Vietnamese case with that of neighboring countries, namely Malaysia and Thailand The findings are that Vietnam’s bond market is relatively undeveloped compared to its neighbors The thesis outlines policy suggestions for the Government of Vietnam including measures to broaden the investor base and enhance the liquidity of the government secondary bond market These measures reflect the path followed by Malaysia and Thailand’s early bond market development and if implemented would strengthen the bond market and enable SBV to implement OMO effectively The government must undertake deeper reform over the long run to development the bond market There are some things that the authorities should in short term run Like Malaysia and Thailand, Vietnam should set up a primary dealer system for government security auctions and trading Experiences from the two countries also show that primary dealers can facilitate the conduct open market operations of the central bank Second, as all developed bond market must set up a bond yield curve, and before that they must develop certain benchmark securities with high liquidity, Vietnam needs to focus on issuance of key maturities and gradually build up a trusted benchmark yield curve This measure is a long-term operation given the interest rate controls in Vietnam and will require patience from both investors and authorities 47 Third, in order to broaden the investor base on domestic bond market, the authorities should consider on tax exemptions for capital gains from bond investments The thesis can be extended to study on how to develop the domestic corporate bond market as there is a two-way complementary relationship between government and corporate bond markets If the corporate bond market is developed, it can support 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Thailand and Malaysia where bond markets have developed well, and then give recommendations for Vietnam to improve and set up conditions for a well-functioning government bond market 16 Chapter COUNTRY. .. thesis aims to derive lessons to help improve and boost the development of the domestic government bond market This paper goes through the development of government bond markets in Malaysia and. .. countries in the world, the thesis finds that Vietnam is lacking a vibrant domestic government bond market to facilitate the conduct of OMO Vietnam s conventional secondary government bond market