Vietnam’s Bonds Drop on Lack of Funds, Inflation Expectations

By Bloomberg News - Dec 22, 2010 10:02 AM GMT+0100 

 

 

Vietnam’s government bonds fell on speculation banks have been discouraged from investing in the securities due to a lack of cash and expectations of further rises in inflation. The dong was unchanged.
The yield on the benchmark five-year bonds advanced seven basis points to 11.58 percent, according to a daily fixing price from banks compiled by Bloomberg. A basis point is 0.01 percentage point.
The central bank raised the 7-day interest rate at open- market operations to 10 percent on Dec. 14, and to 9 percent from 8.75 percent on Dec. 9. The increases indicate that the State Bank of Vietnam intended to “consistently tighten monetary policy,” Luu Hai Yen, a Hanoi-based fixed income analyst at Thang Long Securities Joint-Stock Co., wrote in a report published today.
A higher rate at open-market operations “would result in higher interbank rates, causing liquidity turbulence for small banks,” Yen wrote. A shortage of funds will deter banks from buying government bonds, Yen said by phone today.
The overnight deposit rate climbed for a third day, gaining eight basis points to 11.09 percent today, according to data compiled by Bloomberg.
Investors also expect inflationary pressures to boost bond yields higher so they are holding off purchasing, Yen said.
Vietnam’s inflation quickened for a third month in November to the fastest pace in 20 months, with consumer prices rising 11.09 percent from a year earlier. The General Statistics Office will release the December figures this week or early next week.
The dong was unchanged for a fifth day, trading at 19,498 per dollar as of 3:30 p.m. in Hanoi, according to data compiled by Bloomberg.
The State Bank of Vietnam set the daily reference rate at 18,932 dong, a level unchanged since Aug. 18. The currency is allowed to fluctuate by as much as 3 percent on either side of that rate.
The dong stretched between 21,060 and 21,110 this afternoon at gold shops in Ho Chi Minh City, little changed from 21,060 to 21,130 yesterday, according to a telephone-information service run by the state-owned Vietnam Posts & Telecommunications.
To contact the Bloomberg News staff on this story: Diep Ngoc Pham in Hanoi at dpham5@bloomberg.net