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Taiwan Bonds Advance as Growth Concerns Prompt Stocks Selloff

Taiwan’s bonds advanced, with five-year yields dropping the most in a week, as concerns that China’s economic growth is slowing prompted investors to seek safety in government debt. The local dollar was little changed.

Global funds sold $572 million more Taiwanese stocks than they bought today, the biggest daily net sale in 13 months, according to exchange data. The World Bank yesterday cut its 2013 growth forecast for developing countries to 5.1 percent from a January estimate of 5.5 percent estimated in January. The projection for China, Taiwan’s biggest trade partner, was lowered to 7.7 percent from 8.4 percent.

“The five-year bonds are reacting to the selloff in stocks, as we see banks buying,” said Baker Tu, a bond trader at Capital Securities Corp. in Taipei. “It’s not really surprising that China’s economy has taken a turn for the worse, but it’s starting to have a real impact on the markets.”

The yield on the 0.875 percent notes due January 2018 dropped two basis points, or 0.02 percentage point, from June 11 to 0.99 percent in Taipei, according to Gretai Securities Market prices. The decline is the biggest since June 6. Taiwan’s financial markets were shut for a public holiday yesterday.

The Taiwan dollar was little changed at NT$30.162 against its U.S. counterpart, Taipei Forex Inc. prices show. It was trading 0.9 percent stronger one minute before the 4 p.m. close.

The central bank has sold the 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 was steady at NT$29.875 against the greenback, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell seven basis points to 4.9 percent.

The overnight interbank lending rate was little changed at 0.386 percent, according to a weighted average compiled by the Taiwan Interbank Money Center.

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