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Taiwan Bonds, Currency Gain on Reduced Fed Tapering Estimates

Taiwan’s 10-year bonds rose for a fourth day and the currency gained as economists reduced their projections for how much the Federal Reserve will cut debt purchases that have driven demand for emerging-market assets.

Chairman Ben S. Bernanke will probably announce today that monthly bond purchases will be lowered to $80 billion from $85 billion, according to a Bloomberg survey of economists, less than predicted in previous surveys. Asian markets also got a boost as former U.S. Treasury Secretary Lawrence Summers, considered by some investors to be less in favor of maintaining stimulus, withdrew from the race for the next Fed chief, leaving Vice Chairman Janet Yellen as one of the main contenders.

“Suddenly Summers quit the game and Yellen, a dove who’s expected to be a continuation of Bernanke, became the front-runner, so people corrected their overreaction in terms of stocks, currencies and bonds,” said Eric Hsing, a Taipei-based fixed-income trader at First Securities Inc. “The mood is bullish now.”

The yield on the 1.75 percent government notes due September 2023 dropped three basis points to 1.687 percent as of 11 a.m. in Taipei, taking the three-day decline to nine basis points as markets close for the rest of the week for a holiday, according to Gretai Securities Market.

The Ministry of Finance will announce its fourth-quarter bond issuance plan on Sept. 23.

Share Purchases

Overseas investors added to their holdings of Taiwanese shares for a 15th day yesterday, with purchases totaling a net $3.8 billion, stock exchange data show.

Taiwan’s dollar gained 0.4 percent to NT$29.653 versus the greenback and climbed 0.6 percent from Sept. 13, prices from Taipei Forex Inc. show.

The currency was trading 0.2 percent stronger 18 minutes before the 4 p.m. close yesterday, and finished 0.1 percent weaker. The central bank has sold the local dollar in the run-up to the close on most days since March 2012, according to traders who asked not to be identified.

Taiwan’s central bank has euros, yen and dollars to meet banks’ demand for foreign currencies should Fed tapering trigger fund outflows, the Taipei-based Economic Daily News reported today, without saying where it got the information.

One-month non-deliverable forwards in the Taiwan dollar climbed 0.3 percent this week to NT$29.576 and were little changed today, according to data compiled by Bloomberg.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 12 basis points, or 0.12 percentage point, to 4.06 percent today and was down three basis points from Sept. 13.

The overnight interbank lending rate was little changed this week and today at 0.388 percent, a weighted average compiled by the Taiwan Interbank Money Center showed.

To contact the reporter on this story: Justina Lee in Hong Kong at jlee1489@bloomberg.net

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

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