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Cathay United’s Lee Says Yield Curve to Steepen on Rate Outlook

Albert Lee, a Taipei-based fixed-income trader at Cathay United Bank Co., comments on Taiwan’s bond market in a phone interview today.

The yield on the government’s 2 percent notes due July 2016 fell four basis points, or 0.04 percentage point, to 0.992 percent, prices from Gretai Securities Market show. That was the biggest fall for benchmark five-year rates since Sept. 5. The yield on the 1.25 percent securities due September 2021 dropped three basis points to 1.296 percent.

“Trading volume got significantly bigger today as some foreign banks entered the swap market, which in turn dragged down bond yields a lot.

“Since China and western central banks are taking steps to boost their economies, investors are speculating Taiwan may cut interest rates this month as well. That is pretty much the theme that’s going to dominate the market this month.

“The recent manufacturing data from China was quite worrying. People are thinking there might really be a recession coming.”

“Some market players have been doing a bull steepener trade by longing five-year bonds and shorting 10-year ones.

“Five-year rates could test 0.93 percent by year-end. The 10-year yield is harder to predict, as there’s a re-issuance coming and that will add to uncertainties in the market.”

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