Vietnam bonds jump most since June 2013 on Fitch rating outlook

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A street vendor walks past a Chanel SA store inside the Rex Hotel in downtown Ho Chi Minh City, Vietnam. A street vendor walks past a Chanel SA store inside the Rex Hotel in downtown Ho Chi Minh City, Vietnam.

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Vietnam’s government bonds jumped, with the five-year yield sliding the most since June 2013, after Fitch Ratings said the country is on course for a credit upgrade as the economy improves.
The rate on five-year notes slumped 19 basis points, or 0.19 percentage point, to 5.73 percent, the lowest level since Bloomberg started compiling daily fixings from banks in 2006. That took the week’s decline to 61 basis points, the largest since January 2013. Bonds also rose on speculation banks boosted purchases as lending growth that trailed deposit increases left them with more cash.
Fitch may raise Vietnam’s rating to BB-, three levels below investment grade, from B+ currently due to “strengthening in external finances” and an improved economy, Andrew Colquhoun, the head of for Asia Pacific sovereign ratings at Fitch, said yesterday in an interview in London. Inflation (VNCPIYOY) in Vietnam eased last month to the slowest pace since 2009 while the trade balance swung into a surplus.
“Fitch’s credit outlook has bolstered confidence of investors, especially those from overseas and prompted more investment in bonds,” said Nguyen Vu Long, a fixed-income dealer at Saigon Securities Inc. in Ho Chi Minh City. “Local banks have been buying bonds as lending is sluggish, so the Fitch news will probably help send yields further down.”
The dong was steady today at 21,200 per dollar in Hanoi, according to data compiled by Bloomberg. The central bank fixed the currency’s reference rate at 21,246 per dollar, unchanged since June 19, according to its website. The dong is allowed to trade as much as 1 percent on either side of the rate.
The benchmark VN Index of local shares rose 0.6 percent today, the biggest advance in more than a week.
Credit, inflation
Bank loans in Vietnam grew 4.33 percent as of Aug. 21 from end-2013, trailing an 8.12 percent increase in deposits, according to central bank data published Aug. 29.
Inflation eased for a second month to 4.31 percent in August, the slowest since October 2009, according to Hanoi-based General Statistics Office. The nation had a trade surplus of $100 million for the same period, compared with a deficit of $49 million in July.
The rating upgrade may happen in 12 to 18 months, Fitch’s Colquhoun said yesterday at a conference in London. Standard & Poor’s already rates Vietnam at BB-. Moody’s Investors Service raised its assessment in July to B1, four steps below investment grade.
“Bonds with long maturities such as five, 10 and 15 years will be purchased more than the shorter terms,” said Long. “However, the current gains in bonds may prompt some small banks, which don’t have much idle cash, to sell short-maturity notes for profit-taking.” 
The State Treasury sold all of the 6 trillion dong ($283 million) of bonds it offered at auction yesterday. It issued five-year notes at 5.79 percent, 10-year debt at 7.34 percent and 15-year securities at 8 percent, according to an e-mailed statement from Hanoi Stock Exchange.

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