Vietnam's five-year bonds completed the best week in four years on speculation banks are investing spare cash in government debt as an economic slowdown saps demand for loans. The dong was little changed.
The yield on benchmark notes due 2018 fell today to the lowest level since April 2009. The overnight interbank deposit rate tumbled 193 basis points this week to 2 percent, the biggest decline since August, signaling an increase in funds in the financial system. The gauge tumbled 125 basis points today, according to daily fixings by banks compiled by Bloomberg.
"Due to slow lending, banks have a lot of idle funds now, so investing in bonds appeared to be a good alternative," Vu Anh Duc, Hanoi-based deputy director of the investment department at Vietnam Joint-Stock Commercial Bank for Industry & Trade, said by telephone. "This downtrend of yields may continue until the end of this month."
The five-year yield tumbled 65 basis points, or 0.65 percentage point, this week to 9 percent, according to a daily fixing from banks compiled by Bloomberg. That is the biggest decline since the period ended Jan. 16, 2009. The yield dropped 15 basis points today, and the amount that three-year notes pay decreased 8 basis points to 8.45 percent.
Banks' outstanding loans increased by 8.9 percent in 2012, according to a Jan. 9 statement from the central bank, which is targeting a 12 percent expansion in credit this year. Lending growth may be slow in the first few months of 2013 because of economic challenges, Prime Minister Nguyen Tan Dung said in his New Year message posted on the government's website on Jan. 1.
The State Treasury plans to sell VND30 trillion ($1.4 billion) of debt in the first quarter, Thoi Bao Ngan Hang reported today, citing figures from the Treasury. The planned issuance will include VND4 trillion of five-year notes and VND3 trillion of 10-year securities, while the remaining amount will be raised for one to three years, according to the newspaper. The Treasury borrowed VND156 trillion in 2012, up 92 percent from 2011, according to the report.
The dong traded at 20,848 per dollar as of 4:20 p.m. in Hanoi, unchanged from yesterday and compared with 20,843 a week ago, according to data compiled by Bloomberg. The central bank set its reference rate at 20,828, unchanged since Dec. 26, 2011, according to its website. The currency is allowed to trade as much as 1 percent on either side of the fixing.