Between end-September and end-December, government bond yields in Viet Nam rose across all tenors, except for the 10-year tenor, largely due to a lack of liquidity in the banking sector in 4Q11. The largest rise in the yield curve was observed at the short-end, particularly for the 1-year tenor, resulting in a flattened yield curve. Between end-December and 15 March, government bond yields fell across all tenors of the curve. The drop in government bond yields since the beginning of this year has been the result of banks' improved liquidity as well as speculation that the State Bank of Viet Nam (SBV) will lower policy rates after seeing 7 straight months of decline in inflation.

As of end-December, Viet Nam’s total local currency (LCY) bonds outstanding stood at VND354.7 trillion (US$16.9 billion), which represents 16.5% y-o-y growth that was mainly driven by 19.9% growth in government bonds outstanding. However, growth in government bonds was offset by an 8.7% y-o-y contraction in corporate bonds outstanding; more corporate bonds matured in 2011 than were issued as high inflation rates made it difficult for corporate issuers to come to the market last year.

At the annual meeting of the Viet Nam Bond Market Association (VBMA) held on 9 December 2011, eight banks signed an agreement to commit themselves to act as experimental market makers in the LCY bond market starting January 2012.

Since 13 March 2012, SBV has decided to cut key interest rates twice by 100 bps each time. The refinancing interest rate, overnight rate for inter-bank electronic payment, and discount rate has been cut to 13%, 14%, and 11%, respectively, to stimulate economic growth as well as to boost market liquidity.