Taiwan Five-Year Bonds Advance in Week on Fed Stimulus Optimism

Taiwan’s five-year bonds gained for a second week as U.S. economic data that missed estimates stoked bets the Federal Reserve will delay cutting stimulus that’s buoyed emerging markets.

Employers in the world’s largest economy added fewer jobs than estimated last month as the nation headed into a 16-day government shutdown, while the trade deficit was little changed in August as imports and exports stalled. Taiwan sold NT$30 billion ($1 billion) of 20-year debt at 2.15 percent this week. The auction’s bid-to-cover ratio, which gauges demand, was 1.65, this year’s highest for similar-maturity sovereign notes.

“The U.S. government shutdown is expected to weigh on economic data this month and next, which may delay the start of the Fed tapering till March next year,” said Star Lai, a fixed-income trader at KGI Securities Co. in Taipei. “The bid-to-cover ratio at the 20-year bond auction was high by this year’s standards, which shows demand is still there.”

The yield on the most-traded 1.25 percent government notes due October 2018 fell two basis points from a week ago to 1.0899 percent, according to Gretai Securities Market. The rate was little changed today.

Global funds bought $249 million more local equities than they sold this week, taking net purchases for the year to $7.9 billion, exchange data show. Foreign investors were net sellers of domestic stocks for the first time in 17 days today as the Taiex index dropped the most in two weeks. Taiwan will report third-quarter gross domestic product growth on Oct. 31.

Currency Market

Taiwan’s dollar was little changed this week at NT$29.455 against the greenback after advancing for eight straight weeks, prices from Taipei Forex Inc. show.

The currency weakened 0.2 percent in the last 16 minutes of trading before closing little changed from yesterday amid suspected intervention by the central bank. The monetary authority 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.

One-month non-deliverable forwards were little changed this week at NT$29.325 per dollar as of 4:18 p.m. in Taipei, according to data compiled by Bloomberg. The contracts slid 0.1 percent today.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped nine basis points, or 0.09 percentage point, this week and one basis point today to 3.24 percent.

The overnight interbank lending rate was steady this week and today at 0.386 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: Amit Prakash at aprakash1@bloomberg.net

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