Vietnam bonds fall on speculation of further policy tightening

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Vietnam's five-year bonds dropped this week by the most in five months as banks refrained from purchasing debt on concern the government will further tighten monetary policy to combat surging inflation. The dong gained.

The government is due to report consumer prices as early as tomorrow. Inflation accelerated to 13.89 percent in March from a year earlier, the fastest pace since February 2009. Bond yields are set to keep rising, Luu Hai Yen, an analyst from Thang Long Securities Joint-Stock Co., wrote in a research report Friday. The government aims to keep prices from rising more than 7 percent this year.

"The consumer prices index this month is expected to remain high and we expect more monetary tightening to be introduced right after the release of the inflation data," said Hanoi-based Yen. "Transactions in the bond market are almost frozen."

Yields rose 35 basis points, or 0.35 percentage point, for the week to 12.33 percent, according to a daily fixing price from banks compiled by Bloomberg. It was the biggest increase since the period ended Nov. 12.

The dong gained 0.06 percent to 20,913 per dollar as of 2:19 p.m. in Hanoi, and was up by the same margin from a week ago, Bloomberg data show.

The State Bank of Vietnam fixed the currency's reference rate at 20,718, compared with 20,723 yesterday, its website showed. The currency is allowed to trade up to 1 percent on either side of that rate.

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