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Taiwan’s 5-Year Bonds Gain as Inflation Eases; Currency Steady

Feb. 5 (Bloomberg) -- Taiwan’s government bonds advanced, with the five-year yield touching a one-week low, after inflation slowed more than analysts forecast. The local dollar was little changed.

Consumer prices rose 1.15 percent in January from a year earlier, the slowest pace in 11 months, the statistics bureau said in Taipei today. The median of 15 estimates in a Bloomberg News survey was 1.4 percent. The MSCI Asia Pacific Index fell from an 18-month high on renewed concern about Europe’s debt crisis as Spanish Prime Minister Mariano Rajoy struggles to impose austerity and restore confidence amid calls to resign on corruption allegations. Taiwan’s debt and equity markets will be shut for Lunar New Year holidays starting Feb. 7.

“Looks like consumer prices will stay at a relatively low level for a while,” said Albert Lee, a fixed-income trader in Taipei at Cathay United Bank Co. in Taipei. “Trading volume has dropped a lot as traders are clearing their positions before the holidays.”

The yield on the 0.875 percent bonds due January 2018 fell one basis point to 0.901 percent, the lowest level since Jan. 28, according to Gretai Securities Market.

The Taiwan dollar was at NT$29.585 against its U.S. counterpart, according to Taipei Forex Inc. It reached NT$29.70 on Jan. 29, the weakest level in more than four months. The central bank has sold the local currency near the close on most days in the past 10 months, according to traders who asked not to be identified.

One-month implied volatility in the Taiwan dollar, a gauge of expected swings used to price options, dropped one basis points, or 0.01 percentage point, to 4.39 percent, according to data compiled by Bloomberg.

The overnight interbank lending rate was steady at 0.385 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.

To contact the reporters on this story: Andrea Wong in Taipei at awong268@bloomberg.net; Argin Chang in Taipei at achang153@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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