Taiwan Bond Yield Falls to Three-Week Low as Output Disappoints

Taiwan’s 10-year bonds gained, driving the yield to a three-week low, as investors sought the safety of fixed-income securities amid signs the island’s economy is slowing.

Industrial production climbed 0.78 percent in October from a year earlier, official data showed yesterday, missing the 1 percent median estimate in a Bloomberg survey of economists. The Taiex index of shares slid in the last three weeks, after data showed Taiwan’s economy expanded at the slowest pace in a year in the third quarter. The gauge rose 0.6 percent today. The gap between yields on five- and 10-year sovereign debt rose to 64 basis points last week, the widest since August 2004.

“The stock market has been falling, which gave the bond market a boost,” said Eric Hsing, a Taipei-based fixed-income trader at First Securities Inc. “Amid early signs of slower growth, investors were buying five-year bonds, but after the spread between five- and 10-year notes widened and economic data continued to disappoint, they have begun buying 10-year notes as well.”

The yield on the 1.75 percent bonds due September 2023 dropped two basis points, or 0.02 percentage point, to 1.696 percent in when-issued trading as of 10:23 a.m. in Taipei, according to Gretai Securities Market. That’s the lowest for 10-year sovereign debt since Nov. 8. The bonds will be sold at a Nov. 29 auction.

The Ministry of Finance will sell NT$30 billion ($1 billion) of 30-year bonds at 2.45 percent today, according to the median estimate of 11 fixed-income traders surveyed by Bloomberg News. The government will report revised third-quarter gross domestic product data and this year’s growth forecast on Nov. 29.

Currency Market

Taiwan’s dollar strengthened 0.3 percent to NT$29.601 against the greenback, prices from Taipei Forex Inc. show, after slipping 0.3 percent in the last six minutes of trading yesterday amid suspected central bank intervention. The monetary authority has sold the 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 on Taiwan’s currency fell 0.02 percent to NT$29.561 per dollar, according to data compiled by Bloomberg. The contracts touched NT$29.585 earlier, the weakest level since Nov. 15.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell three basis points to 3.17 percent. The overnight interbank lending rate was little changed at 0.388 percent, compared with yesterday’s 0.385 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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