Bond drops as government lifts 2011 inflation forecast

Vietnam’s five-year bonds declined for a second day after the government lifted its end of the year inflation forecast, damping demand for debt. The dong weakened.

Consumer prices may rise as much as 17 percent in 2011, compared with the outlook for 15 percent in June and a May prediction of 11.75 percent, the government said on its website yesterday. Inflation accelerated 20.82 percent in June from a year earlier, the fastest pace since November 2008, according to the General Statistical Office in Hanoi.

The revision “caused investors to demand higher yields,” said Hanoi-based Do Giang Nam, head of capital management at Bank for Agriculture & Rural Development, Vietnam’s biggest lender.

The yield climbed one basis point to 12.47 percent, according to a daily fixing price from banks compiled by Bloomberg. The rate fell 13 basis points, or 0.13 percentage point, for the week.

The State Treasury sold 1.65 trillion dong ($80 million) of five-year notes yesterday at 12.3 percent, compared with 12.1 percent at the previous auction on June 23, according to data on the Hanoi Stock Exchange’s website.

The dong dropped 0.1 percent to 20,590 per dollar as of 4 p.m. in Hanoi, and was down from 20,575 a week ago, according to prices from banks compiled by Bloomberg.

The currency may weaken 1.5 percent to 20,900 in six months and 2.4 percent to 21,100 in 12 months, Shirla Sum, an economist at Goldman Sachs Group Inc. in Hong Kong, wrote in a research note yesterday.

The State Bank of Vietnam set the daily reference rate at 20,618 today, unchanged for three days, according to its website. The currency is allowed to fluctuate by as much as 1 percent on either side of that rate. – Bloomberg News

Tags: Vietnam banking industry, Vietnam bonds, Vietnam finance, Vietnam financial