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Foreigners buy bonds as dong falls
Foreigners, after keeping out for months, returned to the market last week to buy bonds worth VND600 billion (US$34.5 million) to take advantage of a weakening dong.
“The key rate (which guides banks’ deposit and lending interest rates) is set to drop further. Therefore, investing in bonds that offer a yield of around 9 percent is a good idea,” the director of an investment fund, who asked not to be named, said.
But it does carry a high level of risk since the dong is weakening, he warned.
The State Bank of Vietnam cut interest rates for a fifth time last month to ward off the global financial crisis and boost growth. The key rate fell to 8.5 percent from 10 percent.
Commercial banks are allowed to set interest rates at a maximum of 50 percent above this rate.
The central bank last month also allowed the dong to weaken by 3 percent against the dollar to boost exports, as the economy expanded at its slowest pace in nine years and the trade deficit widened.
The dong was at VND17,483 a dollar in Hanoi last Friday, according to data compiled by Bloomberg.
It dropped 0.3 percent last week and 8.5 percent in 2008, the biggest annual slide since 1998.
While foreign players seem to have switched to bonds, domestic financial firms remain confused about the choice of asset class.
Commercial banks are hesitating to buy bonds since they mobilized a huge amount of deposits at up to twice the bond interest rates early last year.
Analysts said a VND500 billion issue last month by the Vietnam Bank for Investment and Development for the government had few buyers as banks shunned bonds.
At least $2 billion worth bonds are expected to be issued this year. Prime Minister Nguyen Tan Dung told Ho Chi Minh City authorities that the government is likely to allow the city to raise $1 billion through bonds to speed up infrastructure projects.
But financial firms, including commercial banks, brokerage and investment funds, said the key rate’s moves are worrying. “[It] surged unexpectedly and is now being lowered sharply. We would rather deposit our money in the central bank or in the interbank market than in bonds,” the general director of a commercial bank, who wished to remain anonymous, said.
TBKTSG
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