Vietnam Bond Yield at Five-Month High on Concern About Inflation

Vietnam’s bonds fell, pushing the five-year yield to the highest level since early May, on speculation inflation risk will deter the central bank from lowering interest rates. The dong was steady.

The nation may struggle to keep the gains in consumer prices below 10 percent because of higher seasonal food demand and increased fuel costs, Hanoi Moi newspaper reported on its website today, citing a forecast by the finance ministry’s price control department. Annual inflation quickened for the first time in more than a year last month to 6.48 percent, the General Statistics Office reported Sept. 24.

“The return of inflation means the central bank will not lower interest rates and traders right now are trying to take profits,” said Nguyen Duy Phong, a Ho Chi Minh City-based analyst at Viet Capital Securities. The downgrade of the country’s credit rating by Moody’s Investors Service on Sept. 28, also helped push bonds lower, he said.

The yield on benchmark five-year notes rose five basis points, or 0.05 percentage point, to 10.19 percent, according to a daily fixing rate from banks compiled by Bloomberg. That’s the highest since May 4.

Moody’s cut Vietnam’s foreign- and local-currency government bond ratings to B2 from B1, with a stable outlook, the company said in a Sept. 28 statement . The new rating, five steps below investment grade, puts Vietnam on a par with Egypt and Cambodia, according to data compiled by Bloomberg.

The dong traded at 20,883 per dollar as of 2:31 p.m. in Hanoi, compared with 20,890 on Friday, according to data compiled by Bloomberg. 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 as much as 1 percent on either side of the rate.

To contact the reporter on this story: Nick Heath in Hanoi at nheath2@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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