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Taiwan Bonds Advance on Slowdown, Rate Meeting; Currency Gains

Taiwan’s two-year bonds rose amid signs economic growth is slowing as industrial production and export orders slumped before a central bank policy meeting this week. The local dollar was steady.

Industrial production shrank 11.5 percent in February from a year earlier, the government announced after the market closed yesterday. Export orders fell 14.5 percent that month, the most since May 2009, a separate report on March 20 showed. The central bank will keep its benchmark interest rate at 1.875 percent at its review on March 28, according to all 11 economists in a Bloomberg survey.

“Yields are lower as stock-market losses show people are still wary of the Europe debt crisis,” said Ray Cheng, bond trader at Sinopac Securities Corp. in Taipei. “The economic outlook remains unclear.”

The yield on the 0.625 percent government bonds due February 2015 dropped four basis points, or 0.04 percentage point, to 0.73 percent as of 10:36 a.m. in Taipei, according to Gretai Securities Market. The overnight interbank lending rate was steady at 0.388 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.

ING Groep NV may cut its first-quarter growth forecast of 3.9 percent for Taiwan, the Dutch lender said in a note to clients today, citing weaker production. The island’s economy is likely to expand 1.5 percent, compared with 3.7 percent in the final quarter of 2012, it said.

Taiwan’s dollar strengthened 0.1 percent to NT$29.863 against its U.S. counterpart, according to Taipei Forex Inc. Three-month non-deliverable forwards gained 0.1 percent to NT$29.779 in Hong Kong. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell two basis points to 3.51 percent, according to data compiled by Bloomberg.

Taiwan’s central bank has sold the local currency in the run-up to the close on most days in the past year, according to traders who asked not to be identified.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net

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

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