Taiwan Dollar Forwards Touch 1-Week Low as S&P Downgrades Spain

Taiwan dollar forwards touched a one-week low as a cut in Spain’s debt rating by Standard & Poor’s sapped investor appetite for emerging-market assets. Government bonds rose after South Korea lowered interest rates.

Spanish credit was reduced two notches to one level above junk of BBB- from BBB+, S&P said yesterday, citing mounting economic and political risks and assigning a negative outlook. The Bank of Korea cut borrowing costs for a second time this year to 2.75 percent today, a decision predicted by 13 of 16 economists surveyed by Bloomberg News.

“Spain got downgraded again, but investors aren’t surprised anymore, so we’re seeing limited market reaction,” said George Pu, a bond trader at Sinopac Securities Corp. in Taipei. “South Korea’s rate cut shows Asia’s economy is still in a pretty bad shape and policy makers are taking action to revive growth.”

One-month non-deliverable forwards were little changed at NT$29.28 against the greenback as of 4:26 p.m. in Taipei and reached NT$29.342 earlier, the weakest level since Oct. 4, according to data compiled by Bloomberg. In the spot market, the Taiwan dollar slipped 0.1 percent to NT$29.43, prices from Taipei Forex Inc. show.

One-month implied volatility for the island’s currency, a measure of exchange-rate swings used to price options, was little changed at 3.8 percent.

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

Ten-year yields on Taiwan’s government bonds due September 2022 fell to 1.135 percent from 1.139 percent yesterday, according to Gretai Securities Market. Benchmark rates reached an all-time low of 1.125 percent on July 26.

The overnight interbank lending rate was little changed at 0.387 percent, a weighted average compiled by the Taiwan Interbank Money Centre shows.

To contact the reporters 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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