Vietnam bond yield falls to 2007 low on rate outlook; dong drops

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Vietnam's bonds gained, driving the benchmark five-year yield to the lowest since 2007, on speculation slowing inflation will prompt the central bank to cut interest rates. The dong dropped.

The State Bank of Vietnam may lower its refinancing rate by 50 basis points to 6.5 percent next quarter if policy makers remain comfortable with the inflation outlook and loan growth stays weak, analysts at Standard Chartered Plc, including Hong Kong-based Betty Wang, wrote in a note e-mailed today. It may also reduce a 7.5 percent cap on dong deposit rates, they wrote.

The yield on five-year government notes fell five basis points, or 0.05 percentage point, to 7.92 percent in Hanoi, according to a daily fixing from banks compiled by Bloomberg. That's the lowest since August 2007.

Vietnam's government bonds will rally further on "easing inflation and weak credit growth," according to Standard Chartered. Bank loans increased 2.29 percent this year through May 22, the central bank said on its website this week. That compares with the authority's full-year target of 12 percent.

The dong weakened 0.1 percent to 21,013 per dollar as of 4:30 p.m. in Hanoi, according to data compiled by Bloomberg. The State Bank of Vietnam set its reference rate at 20,828, unchanged since December 2011, according to its website. The currency is allowed to trade as much as 1 percent on either side of the fixing.

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