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Taiwan 10-Year Bonds Gain Most in Two Weeks on Weakening Economy

Taiwan’s 10-year bonds rose the most in more than two weeks on speculation slowing economic growth is boosting demand for the relative safety of debt as global stocks dropped.

Overseas funds sold $1.6 billion more Taiwanese equities than they bought last month, taking net sales for the year to $2.4 billion, according to exchange data. A government report yesterday showed the economy contracted 0.16 percent in the second quarter from a year earlier, following a 0.39 percent expansion in the previous three months. Taiwan’s dollar climbed before the Federal Reserve concludes a two-day meeting today.

“Some securities firms think it’s a good time to raise their holdings of bonds,” said Albert Lee, a Taipei-based fixed-income trader at Cathay United Bank Co. “But you can see yields aren’t dropping a lot as traders are concerned quantitative easing by the Fed will induce rising consumer prices in Asia.”

The yield on the 1.25 percent bonds due March 2022 fell two basis points, or 0.02 percentage point, to 1.159 percent, the biggest drop since July 13, according to Gretai Securities Market.

Taiwan yesterday raised its inflation forecast for the year to 1.9 percent from 1.84 percent and cut the export growth estimate to 0.07 percent from 2.69 percent.

The Taiwan dollar climbed 0.1 percent to NT$29.988 against its U.S. counterpart, according to Taipei Forex Inc. It touched NT$29.870 earlier, the strongest level in almost two weeks. One-month implied volatility, a measure of exchange-rate swings used to price options, fell three basis points to 3.63 percent.

The overnight money-market rate was little changed at 0.389 percent, according to a weighted average compiled by the Taiwan Interbank Money Centre.

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