Vietnam dollar bonds rally after Moody’s boosts sovereign rating

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A Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) branch stands near the Binh Tay market in Chinatown in Ho Chi Minh City. A Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) branch stands near the Binh Tay market in Chinatown in Ho Chi Minh City.

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Vietnam’s dollar bonds jumped the most in more than a month after Moody’s Investors Service upgraded the country’s sovereign ratings for the first time since 2005, citing a stronger economy.
The government’s issuer and senior unsecured bond ranking was raised one level to B1, the fourth-highest junk grade, with a stable outlook, Moody’s said in a statement today. The long-term foreign-currency bond ceiling was lifted two levels to Ba2 from B1 and the long-term deposit ceiling to B2 from B3.
“Vietnam is in the midst of its third consecutive year of broad macroeconomic stability” helped by stable prices, the ratings company said. “The strengthening of the balance of payments and external payments position has been underpinned by a diversification in the structure of Vietnam’s exports” toward more electronic goods and away from labor-intensive products, according to the statement.
The yield on the 6.75 percent notes denominated in the U.S currency and due January 2020 declined two basis points, or 0.02 percentage point, to 4.04 percent as of 4:40 p.m. Hong Kong time, according to prices from HSBC Holdings Plc. The extra yield that investors demand over similar-maturity U.S. Treasuries has declined to 205 basis points from its 2014 high of 323 basis points on Feb. 3, data compiled by Bloomberg show.
“The upgrade may spur demand and trading of Vietnamese government bonds,” said Do Ngoc Quynh, head of treasury at Bank for Investment & Development, Vietnam’s second-largest lender by assets. “It would also help reduce borrowing costs.”
The dong was little changed at 21,230 against the U.S. dollar, while the benchmark VN Index (VNINDEX) of shares gained 0.5 percent.
Moody’s also cited a stabilizing operating environment in the banking system and limited risks to the government’s balance sheet as reasons for the upgrade.
Quickening growth
Vietnam’s economy grew 5.25 percent in the second quarter from a year earlier, quickening from the previous quarter’s 5.09 percent expansion, official data showed on June 27, as last month’s currency devaluation improved the outlook for exports.
The State Bank of Vietnam devalued the dong on June 18 to help spur overseas sales after anti-China protests in May halted production at foreign-owned factories and caused Chinese workers to flee. The central bank weakened its reference rate for the currency by 1 percent to 21,246 per dollar.
Exports rose 14.9 percent in the first six months from the same period last year and imports climbed 11 percent, official data show. The trade surplus for the first half was $1.3 billion.
Vietnam’s growth potential is “robust, given an export manufacturing sector that is well-diversified and increasingly oriented toward higher value-added goods,” Standard & Poor’s said last month, while affirming its BB- rating on the nation with a stable outlook.

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