Taiwan Bond Yields Rise on Optimism Korean Tensions Will Recede

Taiwan’s government bonds fell, with the five-year yield rising the most in more than a week, on speculation political tensions on the Korean peninsula will ease once a possible missile test is completed.

Taiwan’s Ministry of National Defense is using various devices, including radar, to monitor developments on the peninsula, spokesman David Lo said yesterday. South Korea’s Kospi Index of shares advanced for a second day as 11 of 20 economists in a Bloomberg survey forecast the central bank will reduce borrowing costs tomorrow to 2.5 percent from 2.75 percent.

“The international community is very nervous about North Korea’s missile threat, but South Korea seems pretty calm,” said Tobby Lin, a fixed-income trader at Yuanta Securities Co. in Taipei. “Traders are also clearing their positions before South Korea’s rate meeting tomorrow.”

The yield on the 0.875 percent bonds due January 2018 rose one basis point, or 0.01 percentage point, to 0.975 percent in Taipei, according to Gretai Securities Market.

The Taiwan dollar strengthened 0.2 percent to NT$29.998 against its U.S. counterpart, Taipei Forex Inc. prices show. The central bank has sold the local currency in the run-up to the close on most days in the past year, according to traders who asked not to be identified.

One-month non-deliverable forwards rose 0.3 percent to NT$29.945, data compiled by Bloomberg show. The contracts touched NT$30.10 yesterday, the weakest level since July 27.

One-month implied volatility in the Taiwan dollar, a gauge of expected moves in the exchange rate used to price options, dropped 17 basis points to 4.27 percent, according to data compiled by Bloomberg.

The overnight interbank lending rate was little changed at 0.385 percent, according to a weighted average compiled by the Taiwan Interbank Money Center.