Bonds gain on lower inflation target

Vietnam’s five-year bonds rose for a third day after the government pledged to rein in the fastest inflation in 16 years.

Yields fell to the lowest since May after Nguyen Xuan Phuc, Minister and Chairman of the Government Office, announced on Thursday an inflation target of 15% for 2009.

Consumer prices rose 28% from a year earlier in August, the biggest increase since at least 1992, official figures show.

While the inflation target for next year is 15%, “we will strive to bring inflation to about 12.6% in 2009,” Phuc said at a conference in Hanoi.

The yield on the benchmark five-year note fell three basis points to 16.09%, according to a daily fixing from 10 banks compiled by Bloomberg.

A basis point equals 0.01 percentage point.

“Many investors expect inflation will be better next year, so that they are interested in buying long-term debt,” said Nguyen Thu Hong, the Hanoi-based head of Saigon Securities Inc.’s treasury department.

The Vietnamese dong fell 0.06% to VND16,595 per dollar, taking this week’s drop to 0.36%.

The State Bank of Viet Nam set the reference rate for dong trading at VND16,496 a dollar Friday, compared with VND16,497 on Thursday, according to its website.

The currency is allowed to trade by up to 2% on either side of that rate. (Bloomberg)