HANOI: Vietnam bonds rose on Friday, with yields at their lowest in nearly four months, driven by positive investor sentiment about banks' liquidity and slowing inflation, analysts said.

Yields on government bonds on two-year terms fell 0.1438 point to 7.0875 percent, the lowest since Aug. 16, according to Reuters fixings data.

One-year bond yields were down 0.1563 point to 6.4 percent, a low of almost six weeks.

Inflation in November was 5.78 percent year on year, hitting its lowest level since August 2012, according to government data. Annual inflation this year is forecast to slow to between 6.2 and 6.3 percent, the lowest in a decade, Prime Minister Nguyen Tan Dung said last month.

The State Bank of Vietnam, the central bank, on Wednesday said liquidity at credit institutions had improved significantly in recent months. Demand on interbank market has decreased and banks have been investing more in the bond market, according to Nguyen Duy Phong of VietCapital Securities.

The overnight interbank rate dropped to 2.48 percent on Friday from 3.52 percent on Dec. 2, the first trading day of the month, according to Reuters data.

The fall of bond yields, however, is expected to be temporary as demand for Vietnamese dong would increase by year-end, SSI Securities wrote in a client note on Friday.

In a report last month, the Asian Development Bank said Vietnam was the fast growing bond market in emerging East Asia, expanding 18.8 percent year on year at $25 billion. Government bonds grew 24.8 percent to $24 billion.