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Taiwan 10-Year Bonds Decline for Third Week on Growth Optimism

Taiwan’s government bonds dropped for a third week, driving the benchmark 10-year yield to a two-month high, as optimism the island’s economy is improving damped demand for safer assets.

Official data yesterday showed export orders, an indicator of shipments in the next one to three months, rose 11 percent in November from a year earlier, more than the median estimate of 3.9 percent in a Bloomberg News survey and the previous month’s 3.2 percent advance. Stock indexes fell across Asia today after U.S. House Republican leaders canceled a planned vote that would permit higher taxes as budget talks stalled.

“Taiwan’s economic data shows the outlook is getting more promising,” said Albert Lee, a Taipei-based fixed-income trader at Cathay United Bank Co. “But the fiscal cliff is one big event risk. It’ll overshadow the improving fundamentals.”

The yield on the government’s 1.125 percent bonds due September 2022 rose one basis point to 1.151 percent this week, according to Gretai Securities Market. It touched 1.152 percent on Dec. 19, the highest level since Oct. 18, and was steady today.

Taiwan’s dollar slipped 0.1 percent this week and was little changed today at NT$29.122 against its U.S. counterpart, based on Taipei Forex Inc. prices. The currency has appreciated 4 percent this year, poised for a fourth annual gain. One-month implied volatility, a measure of expected moves in exchange rates used to price options, rose five basis points, or 0.05 percentage point, to 3 percent this week. It was 6.30 percent at the end of 2011.

Relative Stability

Taiwan’s central bank has bought the greenback to counter gains in the island’s currency on most days in the past eight months, according to traders who asked not to be identified. The monetary authority’s mandate is to keep relative exchange-rate stability and to intervene in the event of abnormal moves, Governor Perng Fai-nan said Dec. 19, when he and his board kept the benchmark interest rate unchanged at 1.875 percent for a sixth straight quarterly meeting.

The overnight interbank lending rate was steady at 0.389 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.

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