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Taiwan Bonds Gain as Sale Yield Drops to Record; Currency Steady

Aug. 7 (Bloomberg) -- Taiwan’s government bonds rallied after the island sold 20-year debt at a record-low yield, reflecting demand from banks for the higher returns offered by longer-dated securities. The local dollar was little changed.

The Ministry of Finance sold NT$30 billion ($1 billion) of the securities at 1.597 percent, with the banking sector buying 47.3 percent of the total, compared with 37 percent at the last auction of the same maturity in April. Taiwan’s consumer-price index rose 2.46 percent in July from a year earlier, the most since September 2008, the Statistics Bureau said yesterday.

“Banks, including the post office, bought a lot more bonds at this auction as they want to boost their returns,” said George Pu, a debt trader at Sinopac Securities Corp. in Taipei. “But the rally should be relatively short-lived. Yields should edge higher to reflect concerns over consumer prices.”

The yield on the 1.25 percent notes due March 2022 fell one basis point to 1.181 percent, according to Gretai Securities Market. Benchmark 10-year yields have declined 10 basis points in 2012. The rate on the 1.5 percent securities maturing August 2032 dropped one basis point, or 0.01 percentage point, to 1.599 percent.

Exports slumped 11.6 percent in July from a year earlier, more than the 7.7 percent median estimate of 15 economists surveyed by Bloomberg, according to official data released today just before the currency market closed at 4 p.m. in Taipei. That was the biggest decline since January.

The Taiwan dollar closed at NT$29.955 against its U.S. counterpart, compared with NT$29.960 yesterday, according to Taipei Forex Inc. It touched NT$29.850 yesterday, the strongest level since July 20. One-month implied volatility, a measure of exchange-rate swings used to price options, rose four basis points, or 0.04 percentage point, to 3.70 percent.

The overnight money-market rate was steady at 0.386 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: James Regan at jregan19@bloomberg.net

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