Bonds and dong drop last month on inflation concern

VNStockNews.com - Vietnam’s five-year bonds completed their biggest monthly loss in a year on concern inflation will accelerate and erode the value of the debt’s returns. The dong weakened for a third month.

Benchmark yields reached their highest level this year as HSBC Holdings Plc. this week said inflation is “ready to take off” from a five-year low, prompting the central bank to raise interest rates in the first half of 2010. Rising surplus cash in the banking system may also fuel gains in consumer prices, according to Giang Trung Kien, Hanoi-based head of research department at FPT Securities Inc.

The five-year note yield jumped 44 basis points last month, the most since June 2008, to 9.85 percent, according to a daily fixing price from banks compiled by Bloomberg. A basis point is 0.01 percentage point.

“Investors in the market are very concerned that inflation will accelerate because it means the central bank may have to raise interest rates,” said Phung Trung Kien, head of research at APEC Securities in Hanoi.

Consumer prices rose 3.3 percent in July. HSBC predicted it may slow to 2 percent in August before accelerating starting September. The central bank Thursday said it will keep the benchmark interest rate unchanged for a sixth straight month at 7 percent, according to a statement on its website.

The Vietnamese dong fell 0.1 percent this month to 17,818 against the dollar as of 3:17 p.m. in Hanoi, according to data compiled by Bloomberg.

The State Bank of Vietnam fixed the reference rate at 16,968 Friday, versus 16,970 Thursday, its website showed. The currency is allowed to trade up to 5 percent on either side of the set rate.