Taiwan Bond Reverses Gains on Inflation Concern; Forwards Steady

Taiwan’s government bonds reversed earlier gains before data tomorrow which may show rises in consumer prices persisted last month. The local dollar’s forwards were little changed.

Consumer prices rose 2.77 percent in September from a year earlier, following a 3.42 percent increase the previous month that was the biggest in four years, according to the median forecast in a Bloomberg survey before data tomorrow. Taiwan cut its 2012 economic growth forecast last month to 1.66 percent from 2.08 percent, after gross domestic product fell more than estimated in the second quarter.

“It’s a scenario where rising consumer prices counter slowing growth,” said Baker Tu, a bond trader at Capital Securities Corp. (6005) in Taipei. “But in the long run, yields should come down slowly as prices will eventually stabilize.”

The yield on the 1.125 percent bonds due September 2022 climbed one basis point to 1.144 percent, according to Gretai Securities Market. It touched 1.129 percent earlier, close to an all-time low of 1.125 percent reached on July 25.

‘Adequately Loose’

Taiwan’s central bank is adopting an “adequately loose” monetary policy, and will continue to use bill sales to control liquidity in the financial system, Governor Perng Fai-nan said in reply to lawmakers’ questions in parliament on Sept. 26.

One-month non-deliverable forwards were little changed at NT$29.30, trading at a 0.3 percent premium to the spot rate, according to data compiled by Bloomberg.

The Taiwan dollar rose 0.06 percent to NT$29.388 against its U.S. counterpart, according to Taipei Forex Inc. It reached NT$29.198 on Sept. 17, the strongest level since May 3. One- month implied volatility, a measure of exchange-rate swings used to price options, was little changed at 3.9 percent.

The overnight money-market rate was steady at 0.388 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.

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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