Vietnam Money-Bond yields soar on fuel price rise

By Nguyen Nhat Lam

HANOI, July 21 (Reuters) - Yields on Vietnam government bonds jumped by as much as 200 basis points on Monday after the government raised fuel prices by almost a third, stoking anxiety about soaring inflation and possible monetary tightening.

Traders said there were plenty of market participants keen to buy one-year bonds <0#VNBMK=> at a 23 percent yield, a jump from the 21 percent level dealt on Friday.

"Bids were at 23 for 1- to 3-year tenors and at 20 for the 4-to-5-year tenor. But no one wants to sell," said one trader in Ho Chi Minh City.

"It's because of inflation. Base rate will increase, but not as early as next month," the trader said.

Fuel prices were raised by as much as 36 percent on Monday. Analysts predicted that would push inflation within the next couple of months to over 30 percent and force the authorities to raise the base rate again, from an already high 14 percent.

Money markets in Vietnam have been under strain. Average interest rates on overnight dong loans on Vietnam's interbank market rose about 125 basis points in the past week after the central bank drained the domestic currency by selling much sought-after dollars to banks.

Bankers said overnight rates stayed between 20 and 21 percent, the latter being the ceiling on lending rates set by the State Bank of Vietnam in its endeavour to rein in credit growth at 30 percent this year.

Overnight rates were closer to 16 percent a week ago and in high single digits three months back.