Vietnam bonds gain as rate increase may lure cash; dong steady

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Vietnam's five-year bonds rose, snapping a three-day loss, on speculation domestic banks will raise interest rates and lure more funds that can be invested in debt. The dong was little changed.

Banks can increase deposit and lending rates from today, according to a statement from the State Bank of Vietnam on Nov. 25, when policy makers lifted the benchmark rate one percentage point to 8 percent. The central bank said the cap on lending will be set at 12 percent from 10.5 percent previously.

"Commercial banks can raise rates to attract more money," said Vu Thuy Linh, a Hanoi-based bond dealer at LienViet Joint- Stock Commercial Bank. “The central bank is restricting credit growth this year so lending will slow and banks may have more money to buy bonds."

The yield on the note fell 11 basis points to 11.11 percent, the lowest level since Nov. 17, as of 3:12 p.m. local time on Tuesday, according to a daily fixing price from banks compiled by Bloomberg. A basis point is 0.01 percentage point.

Loans increased 34.5 percent in the first 11 months of the year, Thoi Bao Kinh Te Vietnam reported Nov. 26, citing State Bank of Vietnam Governor Nguyen Van Giau. Policy makers set a 30 percent full-year target for credit growth earlier this year.

The dong traded at 18,486 per dollar Tuesday, compared with 18,485 on Monday, according to prices from banks compiled by Bloomberg. It touched a record low of 18,500 on Nov. 26. The State Bank of Vietnam set the daily reference rate at 17,953 versus 17,956 Tuesday. The currency is allowed to fluctuate by as much as 3 percent on either side of that rate.

The currency strengthened to between 19,410 and 19,480 at money changers in Ho Chi Minh City as of 2:30 p.m. Tuesday, compared with 19,440 and 19,500 Monday, according to a telephone directory information service, known as 1080, run by state-owned Vietnam Posts & Telecommunications.

Three-month non-deliverable dong forwards rose for a second day as investors pared bets on how far the currency will depreciate. The contracts climbed 2.5 percent to 18,765 against the dollar Tuesday, versus 19,225 Monday. That means traders are betting on a 1.5 percent decline from the spot rate of 18,486. Forwards, settled in dollars, are agreements in which assets are bought and sold at current prices for future delivery.

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