Bloomberg News

Taiwan Bonds Advance on Concern Growth Slowing; Currency Steady

July 18, 2012

Taiwan’s government bonds gained and the overnight rate fell to the lowest level in more than three months on speculation slowing economic growth will prompt the central bank to ease monetary policy to spur expansion.

Data due July 20 may show Taiwan’s export orders fell for a fourth month in June, dropping 2.75 percent from a year earlier, according to the median estimate of economists in a Bloomberg survey. The overnight interbank lending rate fell for a fifth day, the longest stretch of declines since May 2009, on speculation the island’s central bank will follow South Korea in reducing borrowing costs.

“South Korea central bank’s move has ignited speculation in the market that Taiwan will follow with a rate cut,” said Eric Hsing, a fixed-income trader at First Securities Inc. in Taipei. “The falling overnight rate shows Taiwan’s monetary easing has started.”

The yield on the 1.25 percent bonds due March 2022 fell one basis point, or 0.01 percentage point, to 1.145 percent, according to Gretai Securities Market. Benchmark 10-year rates reached a record-low 1.136 percent on July 13.

The Bank of Korea unexpectedly reduced borrowing costs to 3 percent on July 12. Its Taiwanese counterpart, which left interest rates unchanged at 1.875 percent last month, is scheduled to meet again in September.

The overnight rate slipped two basis points to 0.424 percent, the lowest since March 30.

The Taiwan dollar was little changed at NT$30.002 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.

Taiwan’s economy expanded 0.39 percent in the first quarter from a year earlier, the weakest pace since 2009. The statistics bureau in May cut its 2012 gross domestic product growth forecast to 3.03 percent from 3.38 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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