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Vietnam bonds rally after yields drop at auctions; dong gains

Vietnam's bonds rose this week, with the yield on the two-year notes falling by the most since January, as the government sold debt at lower interest rates. The dong strengthened.

The State Treasury issued 2 trillion dong ($96 million) of two-year notes at 7.4 percent and 990 billion dong of three-year securities at 7.8 percent on April 11, according to the Hanoi Stock Exchange website. That compares with 8.24 percent and 8.45 percent, respectively, for the same tenors at a March 13 auction. "Very abundant funds at banks" have spurred bond investment by lenders, while credit growth slowed in first three months, according to an April 10 statement from the finance ministry.

The two-year yield fell 35 basis points, or 0.35 percentage point, to 7.45 percent, the biggest weekly decline since Jan. 18, according to a daily fixing from lenders compiled by Bloomberg. The rate dropped 25 basis points today. The yield on the three- year securities decreased 11 basis points today and 15 basis points this week to 7.87 percent.

The government sold 65.5 trillion dong of bonds in the first quarter, or 34 percent of its 2013 sale target, according to the finance ministry's statement.

The dong strengthened 0.4 percent this week and was little changed today at 20,853 per dollar as of 4:57 p.m. in Hanoi, data compiled by Bloomberg show. The State Bank of Vietnam set its reference rate at 20,828, unchanged since December 2011, according to its website. The currency is allowed to trade as much as 1 percent on either side of the daily fixing.