Vietnamese bonds gain on inflation, deposit-rate cap outlook

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Vietnam's three-year bonds gained on speculation inflation will remain under control and the central bank will cut the interest-rate cap on local-currency deposits. The dong was steady.

Consumer prices will increase 0.05 percent to 0.1 percent in May from April, Bank for Investment & Development of Vietnam analysts including Hoang Nu Ngoc Thuy and To Thuy Duong in Hanoi wrote in a research note today. That compares with a month-on- month average of 0.5 percent in the year through April. The central bank will probably reduce the deposit-rate cap by 50 basis points at the end of May, after the inflation data are released, according to the BIDV note.

The yield on the three-year bonds fell four basis points, or 0.04 percentage point, the most since April 22, to 7.8 percent, according to a daily fixing from banks compiled by Bloomberg.

The government bond market continues to be supported by "steady and low funding costs" and "abundant liquidity in the banking system," BIDV analysts wrote in the note. "Investing in government bonds is still a good option."

Credit increased 1.4 percent as of April 23 from the end of 2012, Thoi Bao Ngan Hang, a central bank publication, reported May 6. The country is targeting 12 percent loan growth this year.

The dong traded at 20,935 per dollar as of 3:34 p.m. in Hanoi, according to data compiled by Bloomberg. The State Bank of Vietnam set the currency's reference rate at 20,828, unchanged since December 2011, according to its website. The dong is allowed to trade as much as 1 percent on either side of the fixing.

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