Taiwan Bonds Gain on Speculation Central Bank Will Ease Policy

Taiwan’s government bonds gained, with 10-year yields dropping to the lowest in more than a month, on speculation the central bank will follow South Korea in cutting interest rates. The local dollar weakened.

Bank of Korea unexpectedly lowered the benchmark seven-day repurchase rate to 3 percent today, the first reduction since February 2009. Taiwan’s exports contracted for a fourth month in June, while inflation was the highest since January, official data showed in July.

“There’s speculation among traders that Taiwan’s central bank will follow South Korea,” said George Pu, a bond trader at Sinopac Securities Corp. in Taipei. “However, inflation is still a problem and the central bank has to take that into consideration.”

The yield on 1.25 percent notes due March 2022 fell one basis point, or 0.01 percentage point, to 1.175 percent, according to Gretai Securities Market. That’s the lowest for the benchmark 10-year yield since June 8.

Taiwan’s monetary authority kept borrowing costs unchanged at 1.875 percent at a quarterly meeting last month. The consumer price index rose 1.77 percent in June from a year earlier, following a 1.74 percent increase the previous month.

The currency fell 0.1 percent to NT$30.013 against its U.S. counterpart, according to Taipei Forex Inc. One-month implied volatility, a measure of exchange-rate swings used to price options, fell 15 basis points to 3.65 percent.

The overnight interbank lending rate was little changed at 0.509 percent, according to a weighted average compiled by the Taiwan Interbank Money Centre.

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