Taiwan Yields Have Biggest Decline in Three Quarters on Slowdown

Taiwan’s government bonds had their biggest quarterly gains since September as investors demanded the safest assets amid concern a debt crisis in Europe is hurting the island’s economy.

Taiwan held interest rates unchanged at 1.875 percent at a quarterly meeting last week, after the statistics bureau revised its 2012 growth forecast to 3.03 percent from 3.38 percent. The local dollar dropped 1.3 percent this quarter as global funds sold $5.9 billion more Taiwanese stocks than they bought, according to exchange data. Benchmark 10-year yields rose the most in a week today after European leaders agreed to ease repayment rules for emergency loans to Spanish banks and relax conditions on help to Italy.

“Pessimism over economic prospects keeps looming over the market,” said Eric Hsing, a fixed-income trader at First Securities Inc. in Taipei. “As borrowing costs remain unchanged, there won’t be much room for yields to go down further.”

The benchmark 10-year rate dropped four basis points, or 0.04 percentage point, to 1.229 percent this quarter, according to Gretai Securities Market. It rose three basis points in June.

The currency fell 0.1 percent to NT$29.9 against its U.S. counterpart this month, and rose 0.2 percent today, according to Taipei Forex Inc. It dropped to 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, declined 32 basis points to 3.9 percent today.

The overnight interbank lending rate surged nine basis points during the three-month period to 0.508 percent, the most since 2007, according to a weighted average compiled by the Taiwan Interbank Money Centre. It slipped one basis point today and this month.

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