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Taiwan Bonds at One-Week High as Economy Slows; Currency Gains

June 27 (Bloomberg) -- Taiwan’s five-year government bonds traded at the highest level in more than a week on speculation investors are seeking the safest assets as the island’s economy slows. The local currency strengthened.

The central bank held borrowing costs unchanged at 1.875 percent on June 21, a day after government data showed export orders declined for a third month in May and the jobless rate climbed. German Chancellor Angela Merkel told lawmakers yesterday that she “doesn’t see” shared debt happening in the euro area, ahead of a two-day summit of European leaders to tackle the region’s financial crisis that starts tomorrow.

“Economic uncertainties continue to favor bonds,” said George Pu, a bond trader at Sinopac Securities Corp. in Taipei. “But now that the central bank decided to hold rates, the room for yields to go down even more is very limited.”

The yield on the 1 percent bonds due January 2017 was 0.930 percent, compared with 0.932 percent yesterday, according to Gretai Securities Market. That was the lowest level since June 19. The benchmark five-year yield fell seven basis points, or 0.07 percentage point, this quarter.

Taiwan’s dollar gained 0.1 percent to NT$29.960 against its U.S. counterpart, according to Taipei Forex Inc. It has dropped 1.4 percent since the end of March and reached NT$30.070 on June 5, the weakest level since Jan. 17. One-month implied volatility, a measure of exchange-rate swings used to price options, fell 25 basis points to 4.30 percent.

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

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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