Taiwan Government Bonds Advance on Deteriorating Export Outlook

Taiwan’s 10-year sovereign bonds advanced for a second day as the island’s bleak export outlook encouraged investors to favor the safety of government debt. The local currency strengthened.

Bonds extended their rally after the Ministry of Finance sold NT$35 billion ($1.2 billion) of 10-year notes at 1.187 percent, lower than the 1.20 percent estimated by traders in a Bloomberg survey. The central bank will keep its benchmark interest rate at 1.875 percent tomorrow for a fifth quarter, according to 17 of 19 economists surveyed by Bloomberg. One forecast a 12.5 basis point reduction, while another predicted a 25 basis point cut.

“The auction result shows demand for bonds is really big, especially from banks,” said Alex Lai, a Taipei-based fixed-income trader at Grand Cathay Securities Corp. “There’s a big chance the central bank will not move tomorrow.”

The yield on Taiwan’s 1.125 percent notes due September 2022 dropped one basis point, or 0.01 percentage point, to 1.191 percent, according to Gretai Securities Market. That’s the biggest decline for benchmark 10-year notes in two weeks.

Official data due tomorrow will show export orders dropped 1.9 percent in August from a year earlier, following a 4.4 percent decline in July, according to the median estimate of economists surveyed by Bloomberg. Taiwan cut its full-year overseas sales estimate last month to a 1.72 percent contraction from a 0.07 percent expansion.

Grim Outlook

Consumer prices rose 3.42 percent in August from a year earlier, the most in four years, official data show. Farm losses from a typhoon last month were NT$279 million, according to the Council of Agriculture.

The grim export outlook and inflationary risks will force the monetary authority to stay put, economists at Australia & New Zealand Banking Group Ltd., led by Hong Kong-based Liu Li-Gang, wrote in a report released yesterday.

The Taiwan dollar strengthened after the Bank of Japan increased its asset-purchase fund to 55 trillion yen ($697 billion) from 45 trillion yen, according to a statement released in Tokyo today.

The currency advanced 0.2 percent to NT$29.405 against its U.S. counterpart, according to Taipei Forex Inc. One-month non-deliverable forwards added 0.2 percent to NT$29.32 against the greenback, a 0.3 percent premium to the spot rate, according to data compiled by Bloomberg.

The overnight money-market rate held at 0.386 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.

-- Editors: Amit Prakash, Simon Harvey

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