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Taiwan Bonds Advance as Greek Exit Concern Spurs Safety Demand

May 14 (Bloomberg) -- Taiwan’s government bonds gained, sending benchmark five-year yields to a two-month low, as concern Greece will exit the euro spurred investor demand for the safest assets. The local dollar weakened.

Global funds sold $1.5 billion more Taiwanese stocks than they bought last week, cutting net purchases for this year to $2.3 billion, according to exchange data. Taiwan’s exports declined 6.4 percent in April from a year earlier, after a 3.2 percent drop the previous month, official data showed last week. Economic growth slowed to 0.36 percent last quarter, the least since a contraction in 2009.

“I’m bullish on bonds short-to-medium term as markets will be risk-averse on Europe,” said Eric Hsing, a fixed-income trader at First Securities Inc. in Taipei. “Taiwan’s economic outlook is also supporting bonds.”

The yield on the government’s 1 percent bonds due January 2017 fell two basis points to 0.961 percent, the lowest level since March 13, according to Gretai Securities Market.

The overnight interbank lending rate was little changed at 0.509 percent, according to a weighted average compiled by the Taiwan Interbank Money Center. It reached 0.514 percent on May 11, the highest level since 2008.

A withdrawal by Greece from the euro “is not necessarily fatal, but it isn’t attractive,” European Central Bank Governing Council member Patrick Honohan said on May 12.

Taiwan’s dollar weakened 0.3 percent to NT$29.502 against its U.S. counterpart, according to Taipei Forex Inc. One-month implied volatility, a measure of exchange-rate swings traders use to price options, rose 22 basis points to 4.52 percent.

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

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