Taiwan Bonds Drop After South Korea Holds Rate; Currency Gains

Taiwan’s government bonds fell after South Korea left interest rates unchanged, reducing speculation the island will cut borrowing costs. The local dollar advanced on stock inflows.

The Bank of Korea kept borrowing costs at 3 percent today after a surprise cut in July, a decision predicted by 10 of 16 economists surveyed by Bloomberg. Global funds bought $661 million more Taiwanese shares than they sold today, taking net purchases for the week to $1.5 billion, exchange data show.

“There were some banks betting on a rate cut by South Korea yesterday, so now they’re disappointed,” said Albert Lee, a Taipei-based fixed-income trader at Cathay United Bank Co. “The current yield level is pricing in a rate-hold scenario in Taiwan too.”

The yield on the 1.25 percent notes due March 2022 climbed two basis points, or 0.02 percentage point, to 1.19 percent in Taipei, the highest level in a month, according to Gretai Securities Market.

Taiwan and South Korea’s economies are both export-oriented and focus on technology-related industries such as semiconductor chips and smartphones. The island’s monetary authority kept the discount rate for 10-day loans at 1.875 percent in June, and its next meeting is scheduled for September.

The Taiwan dollar gained 0.2 percent to NT$29.940 against its U.S. counterpart, according to Taipei Forex Inc. It touched a one-month high of NT$29.830 yesterday. One-month implied volatility, a measure of exchange-rate swings used to price options, dropped 17 basis points to 3.45 percent.

The overnight money-market rate was little changed at 0.386 percent, according to a weighted average compiled by the Taiwan Interbank Money Centre.

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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