Taiwan’s Bonds Set for Best Week in a Month; Local Dollar Gains

Taiwan’s five-year bonds headed for the biggest rally in a month as signs economic growth is losing momentum prompted investors to favor the safest assets. The local dollar strengthened.

Exports (TWTREXPY), which account for more than 60 percent of gross domestic product, rose 1.6 percent in July from a year earlier, data showed Aug. 7. That was less than the 4.9 percent increase forecast by economists in a Bloomberg survey and compared with an 8.6 percent advance the previous month. Consumer prices advanced 0.08 percent, the least since August 2010.

The yield on the government’s 0.875 percent bonds due January 2018 fell seven basis points this week to 1.10 percent as of 10 a.m. in Taipei, the biggest drop since the five days ended July 12, according to Gretai Securities Market. The rate declined one basis point, or 0.01 percentage point, today.

“Taiwan’s July economic data was bad, which was a contrast to its June numbers, showing its economic outlook isn’t certain yet,” said Sandy Liao, a fixed-income trader at KGI Securities Co. in Taipei. “Trading is quite thin today; We’re waiting for the result of the two-year certificates sale.”

The central bank will sell NT$10 billion ($334 million) of two-year negotiable certificates of deposit today, the first such offering since 2003.

Currency Strengthens

The Taiwan dollar gained 0.7 percent from the end of last week, and 0.1 percent today to NT$29.928 against its U.S. counterpart, Taipei Forex Inc. prices show. The currency was 0.3 percent stronger 17 minutes before the 4 p.m. close yesterday, and pared its gain to 0.2 percent.

The central bank has sold its currency in the run-up to the close on most days since March 2012, according to traders who asked not to be identified.

One-month non-deliverable forwards rose 0.3 percent to NT$29.905 per dollar this week, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 48 basis points to 3.34 percent.

The overnight interbank lending rate was little changed 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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