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Taiwan Bonds Drop on U.S. Recovery Signs; Local Dollar Weakens

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March 14 (Bloomberg) -- Taiwan’s government bonds fell, with benchmark 10-year yields rising the most since October, as signs the U.S. economy is improving brightened the export outlook and fueled demand for higher-yielding assets. The local dollar weakened.

The Federal Reserve said yesterday it expects “moderate economic growth” in the world’s largest economy and predicted the unemployment rate will decline gradually. Global funds bought $515 million more of the island’s stocks than they sold today, the highest net purchases this month, according to exchange data. The central bank, which left its benchmark interest rate at 1.875 percent in December, will next review monetary policy on March 22.

“Yields are going up as the global economy isn’t looking that bad after all,” said Samson Tu, a Taipei-based fund manager at Uni-President Assets Management Corp., who helps manage $1.6 billion of fixed-income securities. “The central bank will probably keep interest rates unchanged.”

The yield on Taiwan’s 1.25 percent government bonds due March 2022 rose two basis points, or 0.02 percentage point, to 1.279 percent, according to Gretai Securities Market. That was the biggest rise for benchmark 10-year yields since Oct. 24.

The government raised NT$40 billion ($1.4 billion) selling 20-year bonds at a yield of 1.708 percent yesterday, more than the median 1.7 percent estimate in a Bloomberg survey. The Ministry of Finance will release its second-quarter bond auction plan on March 23.

Taiwan’s dollar weakened 0.1 percent to NT$29.549 against its U.S. counterpart, according to Taipei Forex Inc. One-month implied volatility, a measure of exchange-rate swings that traders use to price options, fell 0.1 to 4.60 percent.

The overnight money-market was little changed at 0.397 percent, according to a weighted average compiled by the Taiwan Interbank Money Center.

To contact the reporter on this story: Andrea Wong in Taipei at awong268@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net