Taiwan Bonds Advance as Growth Concerns Prompt Stocks Selloff

Taiwan’s bonds advanced, with five-year yields dropping the most in a week, as concerns that China’s economic growth is slowing prompted investors to seek safety in government debt. The local dollar rose.

Global funds sold $153 million more Taiwanese stocks than they bought on June 11, taking net sales this month to $1.1 billion, according to exchange data. The World Bank yesterday cut its 2013 growth forecast for developing countries to 5.1 percent from a January estimate of 5.5 percent estimated in January. The projection for China, Taiwan’s biggest trade partner, was lowered to 7.7 percent from 8.4 percent.

“The five-year bonds are reacting to the selloff in stocks, as we see banks buying,” said Baker Tu, a bond trader at Capital Securities Corp. in Taipei. “It’s not really surprising that China’s economy has taken a turn for the worse, but it’s starting to have a real impact on the markets.”

The yield on the 0.875 percent notes due January 2018 dropped two basis points, or 0.02 percentage point, from June 11 to 0.99 percent as of 10:48 a.m. in Taipei, according to Gretai Securities Market prices. The decline is the biggest since June 6. Taiwan’s financial markets were shut for a public holiday yesterday.

Taiwan Dollar

The Taiwan dollar rose, snapping two days of declines that followed central-bank intervention to curb its strength. The currency rose 0.73 percent to NT$29.94 against its U.S. counterpart, Taipei Forex Inc. prices show.

The central bank has sold the currency in the run-up to the close on most days in the past year, according to traders who asked not to be identified. The local dollar was trading 0.5 percent stronger one minute before the 4 p.m. close on June 11 and finished 0.3 percent weaker.

One-month non-deliverable forwards retreated 0.3 percent to NT$29.94 against the greenback, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, climbed 11 basis points to 5.08 percent.

The overnight interbank lending rate was steady at 0.388 percent, according to a weighted average compiled by 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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