Vietnam investors buy only third of auction bonds on inflation

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Investors bought only a third of the bonds that Vietnam aimed to sell in the first quarter as inflation accelerated at the fastest pace in more than two years.

The State Treasury sold 13.7 trillion dong ($661 million) of the 40 trillion dong notes it offered, according to figures emailed today by the Hanoi Stock Exchange, where the auctions took place. Consumer prices rose 19.78 percent in May from a year earlier, the most since December 2008, according to official data released yesterday. The yield on the nation's five-year bonds has climbed 126 basis points to 12.75 percent this year as inflation quickened every month since August 2010.

"Under an economic situation where inflation picked up every month like this, many investors chose to stay out of the market or required high coupons," said Do Ngoc Quynh, director of treasury at Bank for Investment & Development of Vietnam, the country's second-biggest bank by assets.

The central bank has raised at least one of its interest rates every month this year to tame Asia's fastest inflation. Policy makers are targeting economic growth of 6.5 percent this year, slower than 6.78 percent last year, to curb price pressures.

Benchmark five-year bonds are headed for a fourth monthly loss, with the yield having risen 28 basis points in May. The rate reached 12.77 percent on May 6, the highest level since November 2008, according to data compiled by Bloomberg.

Auction coupons

Of the 25 auctions held in the first quarter, the State Treasury sold none of the bonds offered in 10, according to the exchange. Vietnam offered coupons that ranged from 10.9 percent to 11.8 percent for the two-, three-, five-, and 10-year notes. Investors sought interest rates as high as 14 percent, the bourse said.

"Most" of the auctions failed as investors demanded interest rates higher than the government was willing to pay, Nguyen Hoang Lan, deputy director of the Hanoi Stock Exchange, told Bloomberg News in an email.

The State Treasury plans to offer between 2 trillion dong and 4 trillion dong of bonds at auctions every Thursday in the second quarter, according to the exchange's website, which didn't list comparative numbers.

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