Bloomberg News

Taiwan Bonds Rise as Central Bank Signals Rate Increase Unlikely

April 27, 2012

Taiwan’s government bonds rose, sending yields to the lowest level this month, after policy makers signaled they won’t raise borrowing costs to tame inflation. The island’s currency advanced to a seven-month high.

Monetary policy has its limits in controlling price pressures, the central bank said in a statement yesterday. Consumer prices rose 1.21 percent in March from a year earlier after climbing 0.23 percent in February, official data showed this month.

“The central bank’s words have shattered speculation on rate rises,” said Stanford Chen, a Taipei-based fixed-income manager at KGI Securities Co. “Taiwan bond yields could tread even lower because of that.”

The yield on the government’s 1 percent bonds due January 2017 dropped two basis points today and four basis points this week to 0.998 percent, according to Gretai Securities Market.

Taiwan’s dollar gained 0.3 percent today and 0.6 percent this week to NT$29.332 against its U.S. counterpart, according to Taipei Forex Inc. It touched NT$29.24 earlier, the strongest level since Sept. 9.

The currency’s one-month implied volatility, a measure of exchange-rate swings traders use to price options, rose 30 basis points, or 0.3 percentage point, to 3.71 percent. The gauge climbed 21 basis points this week.

The overnight interbank lending rate was little changed at 0.502 percent, according to a weighted average compiled by the Taiwan Interbank Money Center. It reached 0.505 percent yesterday, the highest level since 2008.

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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