Taiwan Bonds Fall as Global Rally in Stocks Cuts Demand for Debt

Taiwan’s government bonds fell, pushing the 10-year yield to the highest level this week, on optimism a recovery in the U.S. will boost demand for the island’s exports.

Asian stocks rose after the Dow Jones Industrial Average climbed to a record, driving a second day of gains in the Taiwan dollar. The U.S. Institute for Supply Management reported its non-manufacturing index increased to 56 last month, the highest level since February 2012. The U.S. is Taiwan’s second-biggest export market after China.

“Yields started out pretty high because of the U.S. stock rally,” said Baker Tu, a fixed-income trader at Capital Securities Corp. (6005) in Taipei. “The bond-buying programs should ultimately improve the U.S. economy and may help push yields in Taiwan higher.”

The rate on the 1.125 percent notes due March 2023 was 1.211 percent as of 4:11 p.m. in Taipei, compared with 1.207 percent yesterday, according to prices from Gretai Securities Market. That was the highest level since March 1.

Taiwan’s Taiex index of shares rose for a second day and was 1 percent off a 10-month high reached on Feb. 20. Global funds bought $128 million more of the island’s stocks than they sold yesterday, boosting net purchases this year to $1.9 billion, according to exchange data.

Currency Market

The Taiwan dollar strengthened 0.2 percent to NT$29.67 against its U.S. counterpart, based on prices from Taipei Forex Inc. It touched NT$29.77 yesterday and the day before, the weakest level since September. One-month non-deliverable forwards climbed 0.2 percent to NT$29.608, according to data compiled by Bloomberg.

The central bank has sold the local currency near the close on most days in the past 11 months, according to traders who asked not to be identified.

One-month implied volatility in the Taiwan dollar, a measure of expected moves in the exchange rate used to price options, dropped 53 basis points, or 0.53 percentage point, to 4.08 percent. The overnight interbank lending rate was steady at 0.388 percent, according to the Taiwan Interbank Money Center.

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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