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Vietnam’s Bonds Rally Most Since May After Rate Cut; Dong Stable

Vietnam’s five-year bonds gained by the most since May after the central bank reduced interest rates for THE sixth time this year to spur economic growth. The dong was little changed.

The State Bank of Vietnam cut its refinancing rate to 9 percent from 10 percent with effect from Dec. 24, according to a statement on its website on Dec. 21. It lowered the discount rate to 7 percent from 8 percent. Lower funding costs would boost demand at government debt auctions, according to Hanoi-based Viet Securities Co. The State Treasury will offer 2 trillion dong ($96 million) each of five- and three-year bonds and 3 trillion dong of two-year notes at a sale tomorrow, according to the Hanoi Stock Exchange website.

“The primary market is forecast to continue to be active with high success rates,” Viet Securities analysts including Ha Thi Thu Hang and Nguyen Thanh Khiem wrote in a research note yesterday. “The rate cuts will drive more capital of financial institutions into the primary market.”

The yield on the five-year notes fell 23 basis points, or 0.23 percentage point, to 9.53 percent, according to a daily fixing from banks compiled by Bloomberg. That’s the biggest drop since May 10. It was at 12.55 percent at the end of 2011.

The central bank’s rate adjustments aim “to help companies cope with difficulties in production and business,” it said in the statement. A “stable money market and improving liquidity at banks” provided room for the reductions, according to the statement.

The dong was steady at 20,840 per dollar as of 2:07 p.m. in Hanoi, according to data compiled by Bloomberg. The central bank fixed the reference rate at 20,828, unchanged since Dec. 26 last year, 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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