Taiwan Dollar Weakens, Bonds Advance as Europe Optimism Fades

June 12 (Bloomberg) -- Taiwan’s dollar fell and government bonds rallied as optimism that a 100 billion euro ($125 billion) bailout of Spain’s banks would stem Europe’s debt crisis faded, deterring risk-taking.

Spanish and Italian bond yields surged yesterday as investors turned their attention to debt auctions in Italy this week and elections on June 17 that may determine whether Greece stays in the euro. Global funds sold $604 million more Taiwanese shares than they bought this month, exchange data show.

“It’s clear that investors don’t believe this small step will put an end to the crisis,” said Tarsicio Tong, a foreign-exchange trader at Union Bank of Taiwan in Taipei. “The U.S. dollar will stay strong for a while.”

Taiwan’s dollar fell 0.1 percent to NT$29.934 against its U.S. counterpart as of 9:47 a.m. local time, according to Taipei Forex Inc. The currency touched NT$29.990 earlier, the weakest level since June 6. It could reach NT$30.500 in a month, Tong forecast. One-month implied volatility, a measure of exchange-rate swings used to price options, was steady at 5.40 percent.

The yield on the government’s 1.25 percent bonds due March 2022 slipped one basis point, or 0.01 percentage point, to 1.18 percent, according to Gretai Securities Market. The overnight interbank lending rate fell one basis point to 0.506 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