VINACHEM

Vietnam’s five-year government bond yield dropped the most in two months on speculation falling borrowing costs and weak credit growth are buoying demand. The dong was little changed.

The yield reached the lowest level since July 2007 as the overnight interbank rate declined 20 basis points to 1 percent today, taking its drop in 2013 to 3.42 percentage points, according to data compiled by Bloomberg. Bank loans rose 2.29 percent this year through May 22, the central bank said May 27 on its website. That compares with the government’s full-year credit-growth target of 12 percent.

“Funding costs are low, making bonds a good investment,” said Pham Tri Hieu, deputy head of the money-market trading desk at Nam Viet Commercial Joint-Stock Bank in Ho Chi Minh City. Lenders have surplus cash, and credit growth is slow, he said.

The five-year yield slid 24 basis points to 7.4 percent, according to a daily fixing from banks compiled by Bloomberg. That’s the biggest one-day drop since March 29. The yield fell for an 11th day today, the longest declining streak in a year.

The dong traded at 21,018 per dollar as of 3 p.m. in Hanoi, compared with 21,010 yesterday, according to data compiled by Bloomberg. The central bank 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 fixing.