Vietnam bonds advance on rate, inflation outlook; dong stable

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Vietnam's government bonds gained on Monday, with the three-year yield sliding the most since May, after the central bank forecast lower inflation and borrowing costs by the end of the year. The dong was little changed.

Interest rates on the dong deposits could drop below 8 percent if annual inflation slows to less than 7 percent by year-end, according to a statement on the government website yesterday that cited Governor Nguyen Van Binh. The cost of some preferential loans may fall to levels below 10 percent in 2013, Binh said. The government had previously forecast 2012 inflation at 7 percent to 8 percent.

"This could be a hint from the governor that the central bank may reduce the dong deposit rate to below 8 percent from the current 9 percent," said Nguyen Duc Hai, Ho Chi Minh City- based portfolio manager at Manulife Asset Management. The forecast has fuelled bond demand, according to Hai.

The three-year yield fell 20 basis points, or 0.20 percentage point, to 9.52 percent, the biggest one-day decline since May 15, according to a daily fixing from banks compiled by Bloomberg.

The dong traded 20,865 per dollar as of 3:14 p.m. Monday in Hanoi, compared with 20,868 last week, according to data compiled by Bloomberg. The State Bank of Vietnam set its reference rate at 20,828, unchanged since Dec. 26, according to its website. The currency is allowed to trade as much as 1 percent on either side of the rate.

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