The Impact Of Fiscal And Macroeconomic Factors On Vietnam Government Bond Yield

Abstract

Government bond market plays a key role in financial markets because it provides benchmark yield curve and an effective channel for call for government’s capital. And government bond yield refers to the borrowing cost for government and the expected return for the individual and institutional investors. Having knowledge of government bond yield helps government operate or adjust the government bond issuance to boost the economic conditions in a countries and support investors when diversifying their investment portfolio. To contribute to government bond’s literature and government’s policy, we examine the determinants of government bond yield in Vietnam by using GARCH (1,1) and EGARCH (1,1) models for time-series data. After applying these models, the estimated results show that for the 3-year and 5-year government bond, there are the significant and positive relationships between the independent variables such as the percentage change of Central Government Balance, the first difference of Policy Rate and the first difference of government bond yields while the percentage change of Exchange Rate, and VN Index significantly and negatively affects the change in of government bond yields. For 10-year government bond, Policy Rate, VN Index and VIX are the most significant determinants of this government bond yields. They positively affect the bond yields change while the Inflation has a significant and negative relationship with the first difference of government bond yields. Moreover, the Inflation has more significant impacts on the change in long-term government bond yields than that in shorter-term government bond yields.