Taiwan’s 10-year bond yield jumped the most since 2009 after the central bank hinted it may increase borrowing costs that have remained unchanged in nine policy meetings. The local dollar strengthened.
Taiwan held its benchmark discount rate on 10-day loans to banks at 1.875 percent yesterday to support the economy. “Interest rates will not always be low,” and mortgage holders should monitor their ability to service debt, Governor Perng Fai-nan said, fueling speculation borrowing costs will be raised. As U.S. interest rates may increase in the fourth quarter, Taiwan may start boosting rates at a December review, ANZ Banking Group Ltd. analysts wrote in a Sept. 25 note.
Perng’s remarks “imply rates may rise in the next few meetings,” said Aaron Chien, a Taipei-based bond trader at Taishin International Bank. “The central bank has never given such a reminder before, so traders are adjusting their positions.”
The yield on the 1.75 percent government notes due September 2023 surged 10 basis points today to 1.73 percent, according to Gretai Securities Market. That is the biggest increase for a benchmark 10-year note since 2009, data compiled by Bloomberg show. The rate increased four basis points from Sept. 18, which owing to holidays was the final day of trading last week.
Taiwan’s central bank is unlikely to tighten policy before the Federal Reserve does as that will lead to a stronger Taiwan dollar, Marcella Chow, a Hong Kong-based economist at Bank of America Merrill Lynch, wrote in a note today. The Fed will raise rates in late 2015 at the earliest, according to the bank’s estimates.
Overseas investors added to their holdings of Taiwanese shares for a 21st day today, taking this week’s net purchases to $757 million, according to data from Taiwan Stock Exchange and Gretai Securities Market.
Taiwan’s dollar gained 0.3 percent this week and 0.1 percent today to NT$29.656 versus the greenback, prices from Taipei Forex Inc. show. The currency was trading 0.4 percent stronger on the day 12 minutes before the 4 p.m. close, before paring gains on suspected intervention. 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.
The monetary authority will “maintain the order” in the currency market if it sees “irregularities” such as large short-term capital flows, it said in a statement yesterday.
One-month non-deliverable forwards in the Taiwan dollar were little changed both the week and the day at NT$29.506, according to data compiled by Bloomberg.
One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 14 basis points this week and four basis points today to 3.84 percent.
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.