Bloomberg News

Taiwan Dollar Drops, Bonds Rally as Investors Seek Safest Assets

May 18, 2012

Taiwan’s dollar had the biggest weekly drop since September and government bonds rallied as Europe’s debt crisis spurred investors to seek the safest assets.

Global funds sold $1.1 billion more local stocks than they bought this week, according to exchange data. The Bloomberg- JPMorgan Asia Dollar Index of regional currencies fell for a sixth consecutive day after Fitch Ratings cut Greece’s credit rating to CCC from B-.

“The market’s focus is back on Europe,” said George Pu, a Taipei-based fixed-income trader at Sinopac Securities Corp. “People are worried that Europe’s crisis will drag down Taiwan’s economic growth.”

Taiwan’s dollar weakened 0.7 percent this week and 0.2 percent today to NT$29.63 against its U.S. counterpart, according to Taipei Forex Inc. It touched NT$29.67 earlier, the weakest level since Feb. 2.

The currency’s one-month implied volatility, a measure of exchange-rate swings traders use to price options, surged 193 basis points, or 1.93 percentage points, this week and 66 basis points today to 6.23 percent, and touched a five-month high of 6.75 percent earlier.

Exports dropped 6.4 percent in April from a year earlier following a 3.2 percent contraction in March, official data showed on May 7.

The yield on the government’s 1 percent bonds due January 2017 fell two basis points this week and one basis point today to 0.955 percent, according to Gretai Securities Market.

The overnight interbank lending rate was little changed at 0.506 percent for the week, according to a weighted average compiled by the Taiwan Interbank Money Center.

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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