Taiwan Bonds Gain as Europe Debt Crisis Drives Flight to Safety

Taiwan’s government bonds advanced as rising Spanish borrowing costs added to concern Europe’s debt crisis will worsen, increasing demand for safer assets. The local dollar was steady.

Spain’s 10-year yield climbed to as much as 7.29 percent yesterday, the most since the euro was introduced in 1999. Official data due tomorrow will show Taiwan’s export orders dropped 3.7 percent in May from a year earlier, the third monthly decline, according to the median estimate of economists in a Bloomberg survey. The Financial Supervisory Commission is ready to stabilize financial markets and to ensure companies can satisfy their funding needs, it said in a statement yesterday.

“Europe’s problems will boost bonds in the medium term,” said Eric Hsing, a fixed-income trader at First Securities Inc. in Taipei. “Spain is a much bigger issue than Greece because of its bigger economic size.”

The yield on the government’s 1.25 percent bonds due March 2022 fell one basis point, or 0.01 percentage point, to 1.188 percent as of 4:20 p.m. in Taipei, according to Gretai Securities Market.

The island’s dollar was steady at NT$29.890 against its U.S. counterpart, according to Taipei Forex Inc. One-month implied volatility, a measure of exchange-rate swings used to price options, dropped 23 basis points to 5.10 percent.

Taiwan’s central bank will hold its benchmark interest rate at 1.875 percent on June 21, according to 14 of 15 economists surveyed by Bloomberg. One expects a reduction to 1.75 percent.

The overnight interbank lending rate was steady at 0.510 percent, according to a weighted average compiled by the Taiwan Interbank Money Center.

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