Vietnam bond yields hit record lows, market grows fast

HANOI: Yields of most of Vietnam's dong bonds dropped to record lows on Wednesday due to increased supplies of debt papers and higher investor interest on expectation of an interest rate cut, bankers said.

Yields of government bonds with terms ranging from one to seven years hit their lowest since Reuters started compiling data on Aug. 1, 2008, according to fixings data at 0400 GMT.

Vietnam had the fastest-growing government bond market in emerging East Asia in the first quarter ended March, with debt value jumping 64.6 percent from a year ago to $29 billion, the Asian Development Bank (ADB) said in a report on Tuesday.

The yield of the 10-year debt eased to 8.8375 percent on Wednesday and that on the 15-year bonds dropped to 8.9375 percent, the lowest since Feb. 18, 2009, based on Reuters data.

Fixings of Vietnamese bond yields are calculated daily by Reuters, using bid and ask yield rates contributed by both foreign and domestic banks prior to 0400 GMT.

"Investors are switching funds to bonds as some of debt papers are nearing maturity dates," a Ho Chi Minh City banker said.

Many domestic banks have recorded idle funds so far in 2013, he added, most from short-term deposits, due to tight lending by banks stuffed with bad debt, compounded by an economy growing at its slowest pace in 13 years.

Banks are paying between 5 percent and 7.5 percent for dong deposits with terms shorter than 12 months, the central bank said.

Several banks were aiming to expand consumer loans to help attain their annual credit growth targets, bankers said.

Bond yields have been falling in recent weeks also because of increased bond supplies and expectations of a rate cut after Vietnam recorded inflation in May of 6.36 percent, the lowest since November 2009.

The State Treasury and the Vietnam Bank for Social Policies were scheduled to auction dong bonds to raise a combined 3 trillion dong ($142.8 million).

Bond market growth in Vietnam was fuelled by the "heavy issuance of treasury, central bank, and state-owned enterprise bonds", the ADB said in the regional report.