Fitch signals Vietnam rating upgrade as economy strengthens

Bloomberg

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Commercial and residential buildings stand illuminated at night in Ho Chi Minh City, Vietnam. Commercial and residential buildings stand illuminated at night in Ho Chi Minh City, Vietnam.

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Fitch Ratings indicated Vietnam is on course for a credit upgrade as signs the economy is gathering strength underpin a bond rally that drove five-year yields to a record low.
 
Fitch may raise Vietnam’s rating one level to BB-, three levels below investment grade, from B+ currently due to “strengthening in external finances” and an improved economy, Andrew Colquhoun, the head of for Asia Pacific sovereign ratings, said yesterday in an interview in London.
 
Bonds headed for a fourth weekly gain after official data in the past month showed inflation eased to the slowest pace since 2009 in August, while the trade balance swung into a surplus. The yield on five-year government notes slid 17 basis points to 5.91 percent yesterday, the lowest level since Bloomberg started compiling daily fixings from banks in 2006.
 
“Fitch’s comment on raising Vietnam’s rating is very good news for the market and will support the recent uptrend in domestic bonds,” Do Ngoc Quynh, the head of treasury at Hanoi-based Bank for Investment & Development of Vietnam, the country’s third-largest bank by assets, said yesterday. “It will boost confidence overseas in Vietnamese bonds and strengthen the view of local investors.
 
The rating upgrade may happen in 12 to 18 months, Fitch’s Colquhoun said earlier at a conference in London. Standard & Poor’s already rates Vietnam at BB-. Moody’s Investors Service raised its assessment in July to B1, four steps below investment grade.
 
Growing confidence
 
Fitch’s outlook ‘‘demonstrated the fact that foreign investors are more confident in Vietnam’s economy,” said Nguyen Tan Thang, a fixed-income investment director at Ho Chi Minh City Securities Joint-Stock Co. “With a steady exchange rate, the yields are even better than some other governments.”
 
Inflation decelerated for a second month to 4.31 percent in August, the slowest pace since October 2009. The nation had a trade surplus of $100 million for the same period, compared with a deficit of $49 million in July.
 
The central bank fixed the local currency’s reference rate at 21,246 per dollar yesterday, unchanged since June 19, according to its website. The dong, which is allowed to trade as much as 1 percent on either side of the rate, was at 21,200 yesterday. The overnight interbank rate fell for a sixth day to 1.7 percent, the lowest since May.
 
The State Treasury sold all of the 6 trillion dong ($283 million) of bonds it offered at an auction yesterday. It issued five-year notes at 5.79 percent, 10-year debt at 7.34 percent and 15-year securities at 8 percent, according to an e-mailed statement from Hanoi Stock Exchange.
 
“There’s still a lot of demand for bonds because of low interest and inflation (VNCPIYOY) rates,” said Nguyen Thanh Danh, a Ho Chi Minh City-based bond dealer at Saigon Thuong Tin Commercial Joint-Stock Bank.

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