Vietnam bonds gain on speculation banks stepping up purchases

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Vietnam's government bonds advanced Thursday on speculation banks are buying more dong-denominated debt after credit restrictions and interest-rate increases reduced commercial lending. The dong gained.

The Southeast Asian nation cut its credit-growth target to less than 20 percent this year, from 23 percent, and tightened monetary policy to restrain price gains and stabilize the dong. Vietnam's central bank has raised at least one of its key interest rates each month this year to damp inflation, which accelerated to 19.8 percent in May from a year earlier.

"Banks cannot lend right now because of credit squeezing and very high interest rates," said Nguyen Tan Thang, head of fixed-income research at Ho Chi Minh City Securities Corp. Banks are choosing to buy bonds instead, he said.

Two-year bond yields fell 20 basis points, or 0.2 percentage point, to 12.67 percent, according to a daily fixing rate from banks compiled by Bloomberg. The dong strengthened 0.5 percent to 20,625 per dollar as of 5:19 p.m. Thursday in Hanoi, according to data compiled by Bloomberg.

The central bank set the reference rate at 20,658 Thursday, compared with 20,663 Wednesday, according to its website. The currency is allowed to trade up to 1 percent on either side of the rate.

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