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Vietnam Bonds Have Best Week Since January on Cash: Hanoi Mover

March 1 (Bloomberg) -- Vietnam’s two-year bonds completed their best week since January on speculation banks are investing idle cash in government debt as an economic slowdown curbs demand for loans. The dong was little changed.

The yield on the notes due 2015 dropped 20 basis points, the most since the five days ended Jan. 18. The overnight interbank deposit rate dropped for a second week, falling two basis points to 1.92 percent, according to daily fixings by banks compiled by Bloomberg, signaling adequate funds in the financial system.

“Demand for bonds is still high due to sufficient liquidity, so it dragged the yield down,” said Nguyen Thi Ngoc Anh, head of fixed-income trading at Asia Commercial Bank in Ho Chi Minh City.

The two-year yield dropped two basis points, or 0.02 percentage point, today to 8.40 percent, according to a daily fixing from banks compiled by Bloomberg. The three-year yield fell 11 basis points this week.

Money supply rose 3.3 percent as of Feb. 21 from the end of December, with total deposits in Vietnamese banks rising by 1.84 percent in the same period, according to a government statement yesterday. Lending growth may be slow in the first few months of 2013 because of economic challenges, Prime Minister Nguyen Tan Dung said in his New Year message posted on the government’s website on Jan. 1.

The dong strengthened 0.1 percent today to 20,935 per dollar as of 4 p.m. in Hanoi, according to data compiled by Bloomberg. The currency weakened for a third week, losing 0.2 percent. The central bank set its reference rate at 20,828, unchanged since Dec. 26, 2011, according to its website. The currency is allowed to trade as much as 1 percent on either side of the fixing.

Gold Auction

Vietnam’s central bank held its first trial auction today to sell gold bullion to companies to ensure sufficient supplies of the precious metal and help keep the dong’s exchange rate stable, according to statement on the government’s website.

The monetary authority may buy gold from the domestic market after June 30 to increase foreign-exchange reserves, Dau Tu newspaper reported today, citing Nguyen Quang Huy, head of the central bank’ currency management department. The central bank expects domestic prices of the metal to drop by end of June after commercial banks meet their gold position requirements, the paper said.

To contact Bloomberg News staff for this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net

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

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