Bloomberg News

Taiwan Bonds Gain, Currency Falls on Concern Economy Will Slow

October 26, 2011

Oct. 26 (Bloomberg) -- Taiwan’s government bonds gained on concern slowing global growth will damage the island’s economic outlook. The local dollar was little changed.

Five-year yields dropped by the most in a week before a report on Oct. 31 that will show gross domestic product increased 3.6 percent in the third quarter from a year earlier, the slowest in two years, according to economists surveyed by Bloomberg. Chinese Premier Wen Jiabao said yesterday the government may adjust policies to protect growth, an indication policy makers will slow the pace of currency appreciation if the economy worsens.

“Investors are still worried how China and Europe will affect Taiwan,” said Albert Lee, a Taipei-based fixed-income trader at Cathay United Bank Co.

The yield on the 2 percent bonds due July 2016, the most- traded government debt, fell one basis point, or 0.01 percentage point, to 1.061 percent, prices from Gretai Securities Market show. That’s the biggest decline since Oct. 18. Yields will likely remain between 1 and 1.10 percent in the near term, Lee said.

Despite the sluggish growth outlook, some traders have recently bought five-year debt and sold 20-year securities, a so-called steepener, he said. This is on speculation Taiwan’s insurers will cut their holdings of long-dated government bonds and look for higher returns in corporate debt, Lee said. Steepeners are bets the yield difference between the two maturities will increase.

Taiwan’s dollar was little changed at NT$30.125 against its U.S. counterpart, according to Taipei Forex Inc.

The overnight money-market rate, which measures interbank funding availability, was little changed at 0.395 percent, according to a weighted average compiled by the Taiwan Interbank Money Center.

--Editors: Andrew Janes, Sandy Hendry

To contact the reporter on this story: Andrea Wong in Taipei at awong268@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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