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Taiwan Dollar Has Monthly Slump, Bonds Rise on Export Outlook

May 31 (Bloomberg) -- Taiwan’s dollar had its biggest monthly drop since September and benchmark five-year government bonds completed their biggest rally in nine months on concern Europe’s debt crisis will sap demand for exports.

Overseas shipments fell 5.2 percent in May from a year earlier, a third month of contraction, according to the median estimate of economists in a Bloomberg survey before government data due on June 7. Global funds reduced holdings of local stocks by $3.8 billion this month, exchange data show, after the island’s industrial production dropped for a second month in April and the jobless rate increased.

“Taiwan’s economic outlook is pretty bleak,” said James Wang, a debt trader at Yuanta Securities Co. in Taipei. “The central bank may be allowing the Taiwan dollar to drop more to support exports.”

Taiwan’s dollar weakened 2.1 percent this month and 0.3 percent today to NT$29.86 against its U.S. counterpart, according to Taipei Forex Inc. The currency’s one-month implied volatility, a measure of exchange-rate swings traders use to price options, rose 23 basis points today to 5.93 percent.

The yield on the government’s 1 percent bonds due January 2017 fell six basis points in May and two basis points today to 0.94 percent, according to Gretai Securities Market. That was the lowest level since Feb. 29.

The overnight interbank lending rate was little changed today at 0.514 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

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