Vietnam’s Bonds Advance After Central Bank Sets Lending Rate Cap

Vietnam’s government bonds rose, pushing the benchmark five-year yield to the lowest level since October 2009, after the central bank set a limit on short-term interest rates for some sectors. The dong was steady.

Short-term dong lending rates will be capped at 3 percentage points above the deposit rate limit, or at 15 percent, effective tomorrow, the State Bank of Vietnam said in a May 4 statement on its website. The restriction applies to the export, agriculture and some industrial sectors, as well as small- and medium-sized businesses. The overnight interbank deposit rate dropped 35 basis points to 3.95 percent today, according to data compiled by Bloomberg.

“Bond yields followed declines in market interest rates,” said Nguyen Thanh Danh, a Ho Chi Minh City-based money-market dealer at Saigon Thuong Tin Commercial Joint-Stock Bank. “When banks have surplus funds and can’t lend out to companies just yet, they will buy bonds and Treasury bills.”

The yield on five-year government notes fell 19 basis points to 10.05 percent, the lowest level since Oct. 16, 2009, according to a daily fixing from banks compiled by Bloomberg. Yields have dropped 250 basis points, or 2.5 percentage points, this year.

Short-term lending rates for agriculture and export sectors at commercial joint stock banks ranged from 16 percent to 18 percent between April 23 and April 27, according to a statement today on the central bank’s website.

The dong was little changed at 20,850 per dollar as of 3:35 p.m. in Hanoi, according to data compiled by Bloomberg. The central bank fixed the reference rate at 20,828 today, according to its website. The currency is allowed to trade as much as 1 percent on either side of the rate.

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