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Taiwan 10-Year Bonds Drop on Inflation Outlook; Currency Stable

Taiwan’s 10-year government bond yields rose to a three-week high on concern an increase in electricity prices next month will stoke inflation. The local dollar closed little changed.

The island’s sole electricity retailer, Taiwan Power Co., will raise prices to help recover losses from costlier fuel prices. Inflation reached 1.44 percent in April, compared with 1.21 percent in March, official data show. The statistics bureau forecast last week that consumer prices will rise 1.84 percent this year, versus 1.42 percent in 2011 and 0.97 percent in 2010.

“There is a bit of pressure on inflation this year, which should be short term in nature,” said George Pu, a bond trader at Sinopac Securities Corp. in Taipei. Declines in bond prices may be limited because of buying support from banks and insurers, he said.

The yield on the 1.25 percent note due March 2022 climbed 1.5 basis points to 1.25 percent as of 4 p.m. in Taipei, according to Gretai Securities, the highest level since May 4. The notes may fetch 1.2 percent to 1.4 percent between now and year-end, Pu said.

Taiwanese government bonds have returned 0.97 percent this year, the third-worst performance among 10 Asian markets tracked in a HSBC Holdings Plc index. The securities rose 0.29 percent this month.

The Taiwan dollar was little changed at NT$29.645 against its U.S. counterpart, maintaining its depreciation this month at 1.4 percent, according to Taipei Forex Inc. One-month implied volatility, a measure of exchange-rate swings traders use to price options, dropped five basis points, or 0.05 percentage point, to 5.59 percent.

The overnight interbank lending rate was little changed at 0.51 percent, according to a weighted average compiled by the Taiwan Interbank Money Center.

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