Taiwan Bonds Complete Weekly Drop, Currency Gains on Fed Easing

Taiwan’s government bonds fell this week and the local currency approached a 15-month high after the Federal Reserve said it will expand asset purchases to support growth in the world’s largest economy.

The 10-year yield yesterday reached the highest level since October after the Fed said on Dec. 12 it will start buying $45 billion a month of Treasuries, adding to $40 billion a month of existing mortgage-debt purchases. Taiwan’s central bank will review monetary policy on Dec. 19 and is expected to keep the benchmark interest rate at 1.875 percent, according to all four economists in a Bloomberg survey. Governor Perng Fai-nan said Dec. 12 the economy, which shrank in the second quarter for the first time since 2009, is rebounding steadily.

“Market sentiment has been risk-on this week as the Fed is going to print more money,” said Albert Lee, a fixed-income trader in Taipei at Cathay United Bank Co. “The central bank will probably keep borrowing costs unchanged as the situation hasn’t changed much from the last meeting three months ago.”

The yield on the government’s 1.125 percent bonds due September 2022 climbed to 1.143 percent from 1.136 percent at the end of last week, according to Gretai Securities Market. It touched 1.146 percent yesterday, the highest level for a benchmark 10-year rate since Oct. 26.

The Taiwan dollar gained 0.1 percent this week and was little changed today at NT$29.102 against its U.S. counterpart, according to data from Taipei Forex Inc. The currency touched NT$28.959 on Nov. 12, the strongest level since September 2011. It has appreciated 4.1 percent this year, poised for a fourth straight annual gain.

One-month implied volatility, a measure of expected moves in exchange rates used to price options, dropped three basis points, or 0.03 percentage point, this week to 2.92 percent.

The overnight interbank lending rate was 0.388 percent, compared with 0.386 percent on Dec. 7, a weighted average compiled by the Taiwan Interbank Money Center shows.

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