Vietnam five-year bonds rise most since August as banks may buy

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Vietnam's bonds on Thursday rose the most since August on speculation banks will seek the safety of government securities as rising interest rates boost the risk of bad loans. The dong was little changed.

Non-performing debt may more than double to 5 percent of total bank credit in the country by year-end from 2.16 percent at the end of 2010, Thoi Bao Kinh Te Vietnam newspaper reported Oct. 14. The central bank raised its refinancing rate to 15 percent from 14 percent with effect from Oct. 10, the first increase since May. The State Treasury sold VND1 trillion ($47.6 million) of bonds last week, after failing to raise any amount at the previous two auctions.

"Government bonds may become more attractive to big banks in circumstances where bad debt is rising fast and lending must be carefully considered," said Luu Hai Yen, a Hanoi-based analyst at Thang Long Securities Joint-Stock Co.

The yield on five-year government bonds fell five basis points, or 0.05 percentage point, to 12.40 percent, according to a daily fixing from banks compiled by Bloomberg. That's the biggest drop since Aug. 31.

Bank credit in Vietnam may grow 12 percent this year, Prime Minister Nguyen Tan Dung told the National Assembly in Hanoi on Oct. 20. That's lower than the previous forecast in September of 15 percent to 17 percent.

The dong was unchanged at 21,009 per dollar as of 3:10 p.m. Thursday in Hanoi, according to data compiled by Bloomberg. The central bank fixed the reference rate at 20,803 per dollar on Thursday, unchanged since Oct. 28, according to its website. The currency is allowed to trade up to 1 percent on either side of the rate.

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