Vietnam Three-Year Bond Yield Falls to 2007 Low on Rate-Cut Bets

Vietnam’s bonds rose, pushing the three-year yield to the lowest level since 2007, on speculation slower inflation will give the central bank room to cut interest rates to support the economy. The dong gained.

The State Bank of Vietnam, which lowered its refinance rate by 1 percentage point to 8 percent last month, may reduce it to

7.5 percent this quarter, Standard Chartered Plc economist Betty Wang said in Hanoi today. Consumer prices gained 6.64 percent in March from a year earlier, the least in six months, official data show. Vietnam’s economic growth slowed to 4.89 percent in the first quarter from 5.44 percent in the previous three months, according to General Statistics Office figures.

“Government bond yields will likely go sideways or drop slightly in the near future,” Ha Thi Thu Hang and Dang Mai Trang, Hanoi-based analysts at Bao Viet Securities Co., wrote in a research note e-mailed yesterday. “Bond demand is forecast to continue to increase, especially as credit growth is low and interest rates may be reduced by 0.5 percentage point towards the end of the second quarter.”

The three-year yield fell seven basis points, or 0.07 percentage point, to 7.73 percent, the lowest level since November 2007, according to a daily fixing from lenders compiled by Bloomberg.

The dong gained 0.1 percent to 20,903 per dollar as of 2:45 p.m. in Hanoi, data compiled by Bloomberg show. The State Bank of Vietnam set its reference rate at 20,828, unchanged since December 2011, according to its website. The currency is allowed to trade as much as 1 percent on either side of the daily fixing.