As bonds reprice stocks, global yields put pressure on Vietnam’s VN-Index

The VN-Index entered the Sept. 3 session at 1,832.12 points after gaining 5.55% in August, but selling pressure quickly pulled it down to 1,802.11, about 30 points below the reference level. Buying demand later helped the index recover part of the loss. It stood at 1,821.61 by the end of the morning session, down 10.51 points, or 0.57%.

The broader pressure comes from a global rise in bond yields. The U.S. Federal Reserve has kept its target interest rate at 3.5% to 3.75%, while three members of its Federal Open Market Committee supported another quarter-point increase at the end of July. On Sept. 2, the yield on the 10-year U.S. Treasury reached 4.79%, up 60 basis points from the start of the year. The two-year yield rose from 3.47% to 4.39%, a 92-basis-point increase.

Yields also climbed in Britain, Germany and France. As fixed-income assets offer higher returns, investors may demand more from riskier assets. In emerging markets, the shift can also affect international capital flows, the U.S. dollar and exchange rates. Vietnam has an additional transmission channel through its dong-denominated capital market.

Vietnam’s consumer price index rose 4.89% year on year in August, while average inflation for the first eight months reached 4.45% and core inflation reached 4.24%. Overnight dong interbank rates stood at 7.5% on Aug. 28, up 4.5 percentage points in a week, even as the State Bank of Vietnam injected nearly 54.9 trillion dong through open-market operations.

The trade balance also moved into a $20.46 billion deficit after eight-month exports reached $374.84 billion and imports reached $395.3 billion. Government bond yields and corporate borrowing costs have risen as well, adding to the repricing pressure facing Vietnamese equities.