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Vietnamese Bonds Rally as Cash Supply Concern Spurs Bank Demand

Vietnam’s benchmark five-year bonds rose, pushing the yield to a two-month low, on speculation banks are buying debt rather than lending money in the interbank market after the arrest of a prominent bank investor. The dong climbed.

Nguyen Duc Kien, who helped found Asia Commercial Bank, the nation’s fourth-biggest lender by market value, was arrested Aug. 20 after he allegedly “conducted business illegally,” according to a central bank statement. Asia Commercial will withdraw 36 trillion dong ($1.7 billion) from the interbank market as it seeks to ensure its liabilities, Deputy Chief Executive Officer Nguyen Thanh Toai said today. The central bank injected 22 trillion dong into the financial system via open-market operations since Aug. 21 to boost the supply of cash.

“Extra liquidity has been pumped into the banking system,” said Fiachra MacCana, managing director of Ho Chi Minh City Securities Corp. “The larger banks appear reluctant to lend to smaller banks and end-customers, and the only place they can park money is in the bond market.”

The yield on the five-year notes fell 20 basis points, or 0.2 percentage point, to 9.51 percent, the lowest level since June 13, according to a daily fixing rate from banks compiled by Bloomberg. That’s the biggest drop since May 10. The overnight interbank deposit rate rose 94 basis points to 6.60 percent today, taking its weekly gain to 392 basis points, according to data from banks compiled by Bloomberg.

The dong strengthened 0.6 percent to 20,725 per dollar as of 5 p.m. in Hanoi, according to data compiled by Bloomberg. That was the biggest advance since June 25. 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 daily fixing.

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