Determinants Of Government Bond Volatility In Vietnam

Abstract

This study investigates the volatility of government bond across different maturities (3, 5, and 10 years) in Vietnam. The study utilizes econometric models, including GARCH and EGARCH, to identify the factors influencing bond yield volatility. The findings reveal that preceding yield volatility significantly impacts current yield volatility, as indicated by the positive and statistically significant β1 coefficient in the GARCH model for all three maturities. This suggests a strong relationship between past and present yield volatility. Several variables are identified as significant factors affecting yield volatility across different maturities. For the 3- year maturity, inflation, exchange rate changes, and policy rate fluctuations exhibit statistically significant coefficients, indicating their positive impact on yield volatility. However, government deficit, public debt, and stock market returns do not have a noteworthy influence. Similar patterns are observed for the 5-year maturity, where preceding yield volatility, inflation, exchange rate changes, and foreign exchange reserves significantly affect yield volatility. Conversely, government deficit, public debt, and stock market returns do not play a significant role. In the case of the 10-year maturity, most independent variables are found to have significant coefficients, except for government deficit, public debt, inflation, and stock market returns. Preceding volatility, exchange rate changes, Brent oil price fluctuations, and VN Index changes are identified as significant factors impacting yield volatility. The application of the EGARCH model confirms the importance of the asymmetric coefficient and β1 in capturing the impact of positive and negative news on yield volatility. Positive news is found to have a greater impact, suggesting a non-linear relationship between news shocks and yield volatility. This study highlights the significance of preceding yield volatility and various economic factors in understanding and predicting government bond yield volatility across different maturity periods. The findings provide valuable insights for policymakers, investors, and financial institutions in managing the risks associated with government bond investments