Bloomberg News

Taiwan 10-Year Bond Yield Near Record Low on Easing Speculation

July 16, 2012

Taiwan’s government bonds were little changed, with the 10-year yield near a record low, on speculation the central bank will ease monetary policy. The local dollar gained for a second day.

The overnight interbank lending rate completed the biggest two-day drop in more than three years yesterday after the Bank of Korea unexpectedly reduced borrowing costs on July 12. Taiwan’s export orders dropped 2.2 percent in June from a year earlier, the fourth monthly decline, according to the median estimate of economists in a Bloomberg survey before data due July 20. The island’s central bank kept its benchmark rate at 1.875 percent last month, and will review it again in September.

“Taiwan and South Korea have very similar economic structures and the central bank might want to make sure the island’s exporters remain competitive,” said James Wang, a debt trader at Yuanta Securities Co. in Taipei. “The central bank might let the overnight rate fall even more, together with other measures, to boost liquidity.”

The yield on the 1.25 percent bonds due March 2022 was 1.152 percent, compared with 1.151 percent yesterday, as of 9:51 a.m. in Taipei, according to Gretai Securities Market. The rate reached 1.138 percent on July 13, the lowest for benchmark 10- year notes since Bloomberg starting tracking the data in 2002. The island will sell NT$30 billion ($1 billion) of five-year securities today.

The overnight rate was steady at 0.457 percent, after dropping five basis points in the last two days, the biggest two-day decline since May 2009.

The Taiwan dollar strengthened 0.2 percent to NT$29.957 against its U.S. counterpart, according to Taipei Forex Inc. One-month implied volatility, a measure of exchange-rate swings used to price options, was little changed at 3.5 percent.

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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