Taiwan Five-Year Yield Rises to Two-Week High on Rate Outlook

Taiwan’s government bonds declined, pushing the five-year yield to the highest level in more than two weeks, on speculation the central bank will refrain from cutting interest rates as inflation stays above 2 percent.

Consumer prices rose 2.36 percent from a year earlier, the statistics bureau said in Taipei yesterday, compared with an average 1.3 percent in the past three years. Taiwan’s gross domestic product increased 1 percent in the third quarter, after a 0.18 percent contraction in the previous three months, according to preliminary data released on Oct. 31.

“With the CPI at more than 2 percent and GDP at 1 percent, the governor of the central bank would not want to make any changes to monetary policy,” said Eric Hsing, a fixed-income trader at First Securities Inc. in Taipei.

The yield on the government’s 2 percent bonds due July 2017 rose one basis point, or 0.01 percentage point, to 0.887 percent, the highest level since Oct. 18, according to Gretai Securities Market. The overnight interbank lending rate was little changed at 0.387 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.

The Central Bank of the Republic of China (Taiwan) kept its benchmark interest rate at 1.875 percent on Sept. 20 for a fifth straight review after inflation accelerated to a four-year high of 3.43 percent in August and exports fell. Policy makers next meet on Dec. 27.

Worst Performers

Taiwan’s bonds returned 3.3 percent in the past year, the worst performance among 10 Asian local-currency debt indexes tracked by HSBC Holdings Plc.

The Taiwan dollar appreciated 0.1 percent to NT$29.275 against its U.S. counterpart, data from Taipei Forex Inc. showed. One-month implied volatility, a measure of exchange-rate swings used to price options, increased 16 basis points, or 0.16 percentage point, to 3.60 percent.

One-month non-deliverable forwards rose 0.1 percent to NT$29.210, according to data compiled by Bloomberg. The contracts reached NT$29.245 today and yesterday, the weakest level since Oct. 30, and are at a 0.2 percent premium to the spot rate.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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