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Taiwan Bonds, Currency Gain on Reduced Fed Tapering Estimates

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Sept. 18 (Bloomberg) -- Taiwan’s 10-year bonds rose for a fourth day and the currency gained as economists reduced their projections for how much the Federal Reserve will cut debt purchases that have driven demand for emerging-market assets.

Chairman Ben S. Bernanke will probably announce today that monthly bond purchases will be lowered to $80 billion from $85 billion, according to a Bloomberg survey of economists, less than previous estimates. Asian markets also got a boost as former U.S. Treasury Secretary Lawrence Summers, considered by some investors to be less in favor of maintaining stimulus, withdrew from the race for the next Fed chief, leaving Vice Chairman Janet Yellen as one of the main contenders.

“Suddenly Summers quit the game and Yellen, a dove who’s expected to be a continuation of Bernanke, became the front-runner, so people corrected their overreaction in terms of stocks, currencies and bonds,” said Eric Hsing, a Taipei-based fixed-income trader at First Securities Inc. “The mood is bullish now.”

The yield on the 1.75 percent government notes due September 2023 dropped three basis points to 1.687 percent, taking the three-day decline to nine basis points as markets close for the rest of the week for a holiday, according to Gretai Securities Market.

The Ministry of Finance will announce its fourth-quarter bond issuance plan on Sept. 23.

Share Purchases

Overseas investors added to their holdings of Taiwanese shares for a 16th day today, with purchases totaling a net $3.9 billion, stock exchange data show.

Taiwan’s dollar gained 0.3 percent from Sept. 13 to NT$29.752 versus the greenback, prices from Taipei Forex Inc. show. The currency erased a 0.3 percent advance in the last 13 minutes of trading amid speculation policy makers intervened to rein in exchange-rate appreciation. The central bank has sold the local dollar in the run-up to the close on most days since March 2012, according to traders who asked not to be identified.

Taiwan’s central bank has euros, yen and dollars to meet banks’ demand for foreign currencies should Fed tapering trigger fund outflows, the Taipei-based Economic Daily News reported today, without saying where it got the information.

One-month non-deliverable forwards in the Taiwan dollar climbed 0.2 percent this week to NT$29.6, according to data compiled by Bloomberg. The contracts fell 0.1 percent today.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 19 basis points, or 0.19 percentage point, today and ten basis points this week to 3.99 percent.

The overnight interbank lending rate was little changed this week and today at 0.387 percent, a weighted average compiled by the Taiwan Interbank Money Center showed.

To contact the reporter on this story: Justina Lee in Hong Kong at jlee1489@bloomberg.net

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

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