Taiwan Bond Yield Rises Most in 2 Weeks as Korea Holds Rates

Taiwan’s government bonds fell, with the five-year yield rising the most in two weeks, on speculation the Bank of Korea’s decision to keep borrowing costs on hold will prompt the island’s policy makers to follow suit.

Taiwan and South Korea are both export-driven economies, with companies such as Taiwan Semiconductor Manufacturing Co. and HTC Corp. (2498) competing with neighboring Samsung Electronics Co. for global market share for products such as mobile phones. The local dollar strengthened for a third day as the Bank of Korea kept its benchmark interest rate at 2.75 percent, a result predicted by nine of 20 economists surveyed by Bloomberg. The rest expected a reduction.

“South Korea’s decision not to cut rates is helping drive Taiwan bond yields higher,” said Stanford Chen, a fixed-income manager at KGI Securities Co. in Taipei. “South Korea’s central bank didn’t cut rates, showing they’re still pretty confident about the country’s outlook.”

The yield on the 0.875 percent notes due January 2018 rose two basis points, or 0.02 percentage point, to 0.99 percent, according to Gretai Securities Market. That’s the biggest gain since March 29.

Taiwan’s currency and stocks rose after North Korea failed to conduct a missile test. The North may detonate a nuclear device or carry out a missile test as early as this week, the South’s Defense Ministry said on April 8.

“The fact that North Korea didn’t strike yesterday was comforting to the market, although the political risk remains,” KGI Securities’ Chen said.

Forwards Market

The Taiwan dollar strengthened 0.1 percent to NT$29.98 against its U.S. counterpart, Taipei Forex Inc. prices show. The currency was trading 0.2 percent stronger one minute before the 4 p.m. close. The 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.

One-month non-deliverable forwards climbed 0.1 percent to NT$29.92, data compiled by Bloomberg show. The contracts touched NT$30.10 on April 9, the weakest level since July 27.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 25 basis points to 4.03 percent, according to data compiled by Bloomberg.

The overnight interbank lending rate was little changed at 0.386 percent, according to a weighted average compiled by the Taiwan Interbank Money Center. The Taiex Index of shares advanced 1 percent, the biggest gain since Jan. 29.

To contact the reporter on this story: Andrea Wong in Hong Kong at awong268@bloomberg.net

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

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