HANOI, July 29 Rising demand for Vietnam bonds dragged yields to historic lows on Tuesday as weak lending and a high value of matured bonds boosted liquidity in banks, while investors expected low inflation this year, analysts said.
The yield on government bonds at one-year, two-year and three-year terms all hit their historic lows, at 4.7225 percent, 5.275 percent and 5.73 percent respectively, according to Reuters fixing data
"Banks have extra money from a large amount of bonds matured in July while their lending has been weak," said analyst Nguyen Quang Tu of Vietcombank Securities.
He said bonds maturing in July stood at around 16 trillion dong ($754 million), the second highest this year.
Vietnam's central bank reported a modest credit growth of 3.52 percent for the first half, far below the annual target of 12-14 percent.
Inflation expected low this year also contributed to stronger demand in the low-risk assets, Tu added.
The government has targeted keeping inflation at between 6-7 percent for 2014, against 6.6 percent last year.
July's bid-to-cover ratio as of the latest data was at 2.91, the highest monthly level in 2014 so far, indicating strong bids for government and government-guaranteed bonds.
Yields may fall further, but likely at a slower pace compared to the past three to four weeks, analyst Tu said.
Most yields on government bonds with terms of five years and longer have rebounded from record lows hit in previous sessions.
"Given the currently low short-term G-bond (government bond) yields, investors might focus on longer-term G-bonds for better profits, thus driving up demand for 5Y and 10Y G-bond yields dramatically," Saigon Securities Incorp said in a note to clients on Monday. ($1=21,220 dong) (Reporting by Mai Nguyen; Editing by Ho Binh Minh)