Vietnam’s Bond Yield at Record Low on Economic Optimism, Fitch

Vietnam’s bonds rallied, driving five-year yields to a record low, as signs of an improving economy buoyed demand for government debt and Fitch Ratings indicated the country is on course for a credit upgrade.

The yield on five-year government notes slid 17 basis points, or 0.17 percentage point, to 5.91 percent, the lowest level since Bloomberg started compiling daily fixings from banks in 2006. The dong rose 0.1 percent to 21,200 per dollar in Hanoi. The overnight interbank rate fell for a sixth day to 1.7 percent, the lowest since May.

Bonds headed for a fourth weekly gain after official data in the past month showed inflation eased to the slowest pace since 2009 in August, while the trade balance swung into a surplus. Fitch may raise Vietnam’s rating to BB-, three levels below investment grade, from B+ currently due to “strengthening in external finances” and an improved economy, Andrew Colquhoun, head of sovereign ratings for Asia Pacific, said today in an interview in London.

“There’s still a lot of demand for bonds because of low interest and inflation rates,” said Nguyen Thanh Danh, a Ho Chi Minh City-based bond dealer at Saigon Thuong Tin Commercial Joint-Stock Bank. “Foreign investors are also interested because of those factors as well as a stable currency.”

Inflation in Vietnam decelerated for a second month to 4.31 percent in August, the slowest since October 2009. The nation had a trade surplus of $100 million for the same period, compared with a deficit of $49 million in July.

‘More Confident’

The rating upgrade may happen in 12 to 18 months, Fitch’s Colquhoun said at a conference in London. Standard & Poor’s rates Vietnam BB- already and Moody’s Investors Service boosted its assessment in July to B1, four steps below investment grade.

Fitch’s outlook “demonstrated the fact that foreign investors are more confident in Vietnam’s economy,” said Nguyen Tan Thang, a fixed-income investment director at Ho Chi Minh City Securities Joint-Stock Co. “With a steady exchange rate, the yields are even better than some other governments.”

The central bank fixed the local currency’s reference rate at 21,246 per dollar today, unchanged since June 19, according to its website. The dong is allowed to trade as much as 1 percent on either side of the rate.

The State Treasury sold all of the 6 trillion dong ($283 million) of bonds it offered at an auction today. It issued five-year notes at 5.79 percent, 10-year debt at 7.34 percent and 15-year securities at 8 percent, according to an e-mailed statement from Hanoi Stock Exchange.

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