Taiwan Bonds Gain, Currency Forwards Weaken on Growth Concern

Taiwan’s government bonds rose, pushing the 10-year yield to a two-month low, as investors favored safer assets on more signs the global economy is slowing. Currency forwards weakened.

The securities advanced for a third day as the Asian Development Bank forecast today the region’s economies excluding Japan will expand 6.1 percent this year, compared with a projection of 6.6 percent in July. Taiwan’s consumer prices rose 2.77 percent in September from a year earlier, after reaching a four-year high of 3.42 percent the previous month, according to a Bloomberg survey before data due Oct. 5.

“Sentiment has been more pessimistic this week globally, driving yields down,” said Albert Lee, a Taipei-based fixed-income trader at Cathay United Bank Co. “Inflation should have stabilized. It shouldn’t affect the bond market too much.”

The yield on the 1.125 percent bonds due September 2022 dropped two basis points to 1.135 percent, according to Gretai Securities Market. That’s the lowest level for benchmark 10-year rates since July 26.

The Reserve Bank of Australia unexpectedly cut its benchmark rate yesterday, while data due today are forecast to show euro-area retail sales fell for a second month in August. Taiwan cut its 2012 economic growth forecast last month to 1.66 percent from 2.08 percent, after gross domestic product decreased more than estimated in the second quarter.

One-month non-deliverable forwards declined 0.2 percent to NT$29.318, traded 0.3 percent stronger to the spot rate, according to data compiled by Bloomberg.

The Taiwan dollar weakened 0.1 percent to NT$29.405 against its U.S. counterpart, according to Taipei Forex Inc. It reached NT$29.198 on Sept. 17, the strongest level since May 3. One-month implied volatility, a measure of exchange-rate swings used to price options, was little changed at 3.7 percent.

The overnight money-market rate was steady at 0.388 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.