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Vietnamese Bonds Advance on Speculation More Rate Cuts Coming

Vietnam’s two-year bonds advanced, pushing the yield down by the most in more than two weeks, on speculation slowing growth will prompt more interest-rate cuts. The dong was steady.

Deputy Prime Minister Nguyen Xuan Phuc said on May 21 that the economy is showing signs of a slowdown. The country reduced borrowing costs for a third month in May. Gross domestic product increased 4 percent in the first quarter, the least since 2009, official data show.

“We expect another 200-300 basis points of rate cuts over the next six to nine months as growth risks take precedence over inflation concerns,” Vishnu Varathan, a Singapore-based economist at Mizuho Corporate Bank Ltd. wrote in a research note yesterday.

The yield on the two-year bonds fell 21 basis points, or 0.21 percentage point, to 8.94 percent today, the most since May 15, according to a daily fixing rate from banks compiled by Bloomberg. The yield on the five-year notes dropped two basis points to 9.61 percent. The yields on the two tenors decreased 1.81 percentage points and 1.04 percentage points this month.

The State Treasury sold 55 percent of the 2 trillion dong ($96 million) of two-year debt offered at an auction this week but only 27 percent of the 3 trillion dong of five-year securities, according to a statement on the stock exchange’s website.

“Banks may be preferring government bonds with shorter terms,” said Ha Thi Quynh Trang, a Hanoi-based fixed-income trader at Bank for Investment & Development of Vietnam. “The economy may not be stable in the next few years.”

The dong was little changed today and this month at 20,868 per dollar as of 4:20 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 Dec. 26, according to its website. The dong is allowed to trade as much as 1 percent on either side of the rate.

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