Vietnam bonds drop after policy rates lifted to stem inflation

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Vietnam's benchmark five-year bonds fell this week after the country's central bank raised three key policy rates as part of attempts to combat accelerating inflation. The dong weakened.

The State Bank of Vietnam increased refinancing and repurchase rates to 14 percent from 13 percent, and lifted the discount rate to 13 percent from 12 percent over the last seven days, as officials intensify the fight against the fastest rise in consumer prices in 28 months. Inflation surged to 17.51 percent in April from a year earlier, stoked by increases in fuel and electricity costs.

"Local institutions are staying on the sidelines due to inflation concerns and high deposit rates," said Nguyen Thi Ngoc Anh, the Ho Chi Minh City-based head of fixed-income trading at Asia Commercial Bank. Bonds also fell after the latest government bond auction saw five-year debt sold with a higher coupon than offered in previous sales, she said.

The yield on five-year bonds rose 30 basis points, or 0.3 percentage point, this week to 12.77 percent according to daily fixing prices from banks compiled by Bloomberg. The rate advanced 10 basis points from yesterday.

The dong weakened 0.2 percent this week to 20,580 per dollar as of 4:20 p.m. Friday in Hanoi, according to data compiled by Bloomberg. The currency gained 0.2 percent Friday.

Vietnam's State Treasury sold VND555 billion ($27 million) of five-year bonds at auction yesterday with a coupon of 13.2 percent, the Hanoi Stock Exchange said in a statement on its website. The government offered a maximum coupon of 13 percent in an April 28 auction, which failed to attract any buyers.

The central bank fixed the reference rate at 20,703, compared with 20,708 yesterday, according to its website. The currency is allowed to trade up to 1 percent on either side of the rate.

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