Vietnamese bonds had the biggest weekly drop since November after inflation accelerated to a two- year high in February, raising speculation the central bank will further increase interest rates. The dong gained.
Consumer prices rose 12.31 percent from a year earlier, the fastest pace since February 2009, data from the General Statistics Office showed on Feb. 23. The State Bank of Vietnam lifted its seven-day reverse repurchase rate, or what it charges commercial banks in daily open-market operations, to 12 percent from 11 percent on Feb. 22.
"Rising prices have created pressure on the government to curb inflation through monetary policy tightening," said Pham Minh Hoang, a fixed-income dealer at Hanoi-based Ocean Commercial Joint-Stock Bank. "Higher interest rates would push up bond yields."
The yield on five-year bonds climbed 12 basis points this week, the biggest advance since the five days ended Nov. 12, to 11.58 percent as of 4 p.m. in Hanoi, according to a daily fixing from banks compiled by Bloomberg. A basis point is 0.01 percentage point.
The government has cut its credit-growth target and ordered ministries to narrow the budget deficit as the country seeks to curb inflation, according to an official resolution approved Thursday. The impact of the dong devaluation and the increase in fuel and electricity prices will raise the inflation rate by 2 percentage points, Finance Minister Vu Van Ninh said Thursday.
The dong gained 0.1 percent to 20,870 per dollar this week, the most since the period ended Oct. 1, according to data compiled by Bloomberg. It traded between 21,960 and 22,080 at gold shops in Ho Chi Minh City, compared with 21,920 to 22,050 Thursday, according to a telephone-directory information service run by state-owned Vietnam Posts & Telecommunications.
The central bank set the daily reference rate at 20,683, unchanged for a second day. The currency is allowed to trade up to 1 percent on either side of the fixing.