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Taiwan’s Bond Yield, Currency Rise on U.S., China Stimulus Bets

Taiwan’s government bonds dropped, pushing the 10-year yield to a three-week high, and the local dollar rallied for a fifth day on speculation the U.S. and China will step up efforts to address slowdowns in their economies.

Global funds bought $101 million more Taiwanese equities than they sold today, boosting 2012 net purchases to $752 million, according to exchange data. The Fed will probably keep borrowing costs near zero this week, according to a Bloomberg News survey, and decide whether a third round of quantitative easing is warranted. Chinese Premier Wen Jiabao signaled yesterday there’s more room for fiscal and monetary policy to support growth in Taiwan’s biggest export market.

“Sentiment is pretty risk-on today,” said James Wang, a debt trader at Yuanta Securities Co. in Taipei. “If the U.S. really launches QE3, it’ll attract more money into riskier assets, and yields may go up even more.”

The yield on Taiwan’s 1.125 percent notes due September 2022 rose one basis point to 1.19 percent in Taipei, the highest rate for a benchmark 10-year note since Aug. 21, according to Gretai Securities Market.

The overnight money-market rate held at 0.39 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.

German Ruling

Germany’s top constitutional court cleared the way for a permanent euro-area rescue fund, rejecting bids to halt German ratification of the 500 billion-euro ($644 billion) backstop.

The Federal Constitutional Court in Karlsruhe today dismissed motions filed by groups including a conservative lawmaker and an opposition political party that sought to block the fund, known as the European Stability Mechanism, and a deficit-control treaty championed by Chancellor Angela Merkel.

One-month non-deliverable forwards for Taiwan’s dollar advanced 0.1 percent to NT$29.54 against the greenback, according to data compiled by Bloomberg. That’s a 0.4 percent premium to the spot rate, which rose 0.2 percent to NT$29.669.

Implied volatility in the currency for one-month increased three basis points, or 0.03 percentage point, to 3.6 percent. The measure is a gauge of exchange-rate swings used to price options.

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