Vietnam bonds rise as falling money-market rate spurs demand

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Vietnam's benchmark five-year bonds on Friday rose for a third day, pushing the yield to the lowest in more than a week, on speculation falling money-market rates increased demand from lenders. The dong strengthened.

The overnight interbank deposit rate fell 97 basis points to 4.41 percent on Friday, its lowest level in two weeks, according to data from banks compiled by Bloomberg. The measure has declined 199 basis points since June 26. A drop in the rates at which banks lend to each other makes returns from government debt relatively more attractive.

"That's a buying signal," said Tran Kieu Hung, a Hanoi- based bond trader at Bank for Investment & Development of Vietnam. "Demand for bonds has increased."

The yield on five-year bonds fell four basis points, or 0.04 percentage point, to 9.73 percent, according to a daily fixing rate from banks compiled by Bloomberg. The yield dropped eight basis points this week, the first seven-day decline since the period ending June 8. The rate has decreased 1.75 percentage points this quarter.

Interbank rates slid this week following a drop in the central bank's repurchase rate from 10 percent on June 25 to 8 percent on Friday. The State Bank of Vietnam lowered its refinance rate on Friday to 10 percent from 11 percent and its discount rate to 8 percent from 9 percent, it said in a statement on its website. The cuts, effective July 1, were announced after the bond fixing rate was published.

The dong strengthened 0.1 percent to 20,878 per dollar as of 5:25 p.m. Friday in Hanoi, according to data compiled by Bloomberg, from Thursday. The currency has gained 1.2 percent this week, paring its quarterly decline to 0.3 percent.

The State Bank of Vietnam set its reference rate at 20,828, unchanged since Dec. 26, according to its website. The currency is allowed to trade up to 1 percent on either side of the rate.

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