July 9, 2013 / 8:22 AM / 4 years ago

Vietnam bonds fall on fears of weakening dong currency

HANOI, July 9 (Reuters) - Yields on Vietnam's two-year and three-year bonds reached their highest level in seven weeks on Tuesday as bonds fell for a second day on concerns over unstable foreign exchange rates, traders said.

Government bonds yields on two-year terms rose 0.135 point to 6.985 percent and were up 0.195 point to 7.32 percent over three years, according to Reuters fixings data.

Both were the highest since May 21 and followed a fall in five-year bonds on Monday, when yields were at their highest since the end of May.. They climbed 0.105 point further to 8.03 percent on Tuesday.

"Investors significantly slowed down buying in bonds, pushing up the yields," said Nguyen Duy Phong of Viet Capital Securities, adding that sentiment was dampened by the central bank's recent 1 percent depreciation of the Vietnamese dong , and speculation it could weaken more.

"The primary bond market suffered severely from the adjustment of the exchange rate and concerns of further depreciation," Phong added.

The central bank has said its target was to keep the dollar/dong exchange rate stable, fluctuating within a band of 2-3 percent for the whole of 2013.

The bid/ask quotations for the dong stood at 21,240/21,246 per dollar at 0630 GMT on the interbank markets on Tuesday, down 2 percent from the end of 2012.

High selling volume by foreign investors wary of uncertainty in the market and keen to capitalise on attractive rates has pushed bond yields up, traders said. Foreigners have sold a net 749 billion dong ($35.3 million) of Vietnamese bonds this month, according to the Hanoi Stock Exchange.

The State Treasury is offering more bonds via auctions but it failed to sell any on three-year and five-year terms last week. ($1=21,240 dong) (Compiled by Nguyen Phuong Linh; Editing by Martin Petty)

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