Bloomberg News

Taiwan 5-Year Bonds Set for Best Week in a Year on Fed Optimism

June 27, 2013

Taiwan’s five-year bonds headed for the biggest weekly gain in a year on speculation the Federal Reserve will hold off from cutting asset purchases after U.S. first-quarter growth trailed an earlier estimate.

The world’s largest economy expanded at a revised 1.8 percent rate in the first three months of 2013, official data showed June 26, short of a prior assessment of 2.4 percent. Fed Chairman Ben S. Bernanke said June 19 the central bank may trim its $85 billion a month of debt buying this year and end it in 2014 as long as the economy performs in line with its projections. Taiwan held interest rates for an eighth review yesterday after the government cut its 2013 growth forecast and as a cash crunch in China threatened the economic outlook.

“Volatility’s been really high lately, due to uncertainties over the timing of the Fed’s exit,” said Samson Tu, a Taipei-based fund manager at Uni-President Assets Management Corp., which oversees $700 million. “Taiwan’s financial markets are less prone to the risk of outflows compared with countries like South Korea.”

The yield on the 0.875 percent notes due January 2018 fell four basis points, or 0.04 percentage point, this week to 1.003 percent as of 10:46 a.m. in Taipei, according to Gretai Securities Market prices. That’s the biggest weekly drop in benchmark five-year rates since the five days ended July 13, 2012. The yield dropped one basis point today, and were little changed this month and quarter.

The Taiwan dollar rose 1.1 percent from the end of last week to NT$29.949 against its U.S. counterpart, Taipei Forex Inc. prices show. The currency strengthened 0.8 percent today, and was up 0.4 percent this month.

Central Bank

The local dollar was trading 0.8 percent stronger one minute before the 4 p.m. close yesterday and finished 0.2 percent higher. The central bank has sold the currency in the run-up to the close on most days in the past year, according to traders who asked not to be identified.

“The Fed’s potential scale-back of bond buying and China’s liquidity problems affect the prospects of global economic growth,” Central bank Governor Perng Fai-nan said yesterday. “Keeping interest rates unchanged will ensure a stable economic recovery and inflation outlook.”

One-month non-deliverable forwards gained 0.7 percent this week to NT$29.954 against the greenback, according to data compiled by Bloomberg. The contracts climbed 0.2 percent today. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose two basis points to 5.45 percent during the five-day period and fell three basis points today.

The overnight interbank lending rate was little changed at 0.388 percent, 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: James Regan at jregan19@bloomberg.net


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