Taiwan Bonds Set for Weekly Drop as Government Steps Up Issuance

Taiwan’s government bonds were poised for a weekly drop, with benchmark 10-year yields rising the most in almost five months, after the government announced plans to boost issuance of the securities.

Sales will total NT$275 billion ($9.5 billion) in the coming quarter, 22.2 percent more than in the same period of 2012, the Ministry of Finance said Dec. 22. The offerings will include 15-year securities for the first time since 2005. The Taiwan dollar strengthened 4.3 percent this year as overseas investors boosted their holdings of the island’s stocks by $4.8 billion, according to exchange data.

“There’ll be more sales next quarter, and it’ll create pressure on liquidity,” said Albert Lee, a Taipei-based fixed- income trader at Cathay United Bank Co. “Yields will probably keep on rising in early 2013.”

The yield on the 1.125 percent bonds due September 2022 rose two basis points, or 0.02 percentage point, to 1.169 percent this week, according to Gretai Securities Market. That’s the biggest increase for benchmark 10-year bonds since the period ended Aug. 3. The yield, which was little changed today, fell 12 basis points in 2012 and Lee forecast it will climb to 1.2 percent by the end of March.

The Taiwan dollar strengthened 0.3 percent this week to NT$29.036 against its U.S. counterpart as of 10:25 a.m. local time, according to data from Taipei Forex Inc. It appreciated 0.3 percent today, having erased a gain of that magnitude in the final minutes of trading yesterday on suspected intervention by the central bank.

Intervention Mandate

The monetary authority has bought the greenback to counter gains in the island’s currency on most days in the past eight months, according to traders who asked not to be identified. The central bank’s mandate is to keep relative exchange-rate stability and to intervene in the event of abnormal moves, Governor Perng Fai-Nan said on Dec. 19.

One-month implied volatility in the Taiwan dollar, a measure of expected moves in exchange rates used to price options, climbed 26 basis points to 3.26 percent from the end of last week. It was 6.3 percent at the start of the year.

The overnight interbank lending rate was 0.393 percent, up from 0.389 percent at the end of last week, 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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.