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Taiwan Dollar Falls for Third Week as Yield Gap Spurs Outflows

Taiwan’s dollar posted a third weekly loss on concern rising yields on U.S. assets will lure funds away from local markets. Government bonds fell.

The yield on 10-year Treasuries touched a three-month high yesterday after the Federal Reserve said last week it will cut its debt purchases. The premium on U.S. notes over similar-maturity Taiwanese bonds widened to the most since July 2011 today, after the island’s central bank kept its benchmark interest rate unchanged for a 10th straight meeting yesterday.

“Treasury yields have been rising while there continues to be no incentive for Taiwan’s central bank to raise rates, which was confirmed yesterday,” said Samson Tu, a Taipei-based fund manager at Uni-President Assets Management Corp. “But the Taiwan dollar should stabilize after New Year’s Day.”

Taiwan’s dollar weakened 0.2 percent this week to NT$30.025 against the greenback, prices from Taipei Forex Inc. show. The currency strengthened 0.1 percent today, snapping a 13-day losing streak that was the longest since 1996. It slipped 0.2 percent in the last three minutes of trading amid suspected central bank intervention.

One-month non-deliverable forwards on the currency fell 0.1 percent this week to NT$29.916 per dollar, according to data compiled by Bloomberg. The contracts climbed 0.2 percent today.

The monetary authority will step into the foreign-exchange market in the event of any irregularities, Governor Perng Fai-nan said yesterday. 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.

Rate Outlook

Global funds bought $255 million more Taiwanese stocks than they sold this week, taking net purchases in December to $1.1 billion, exchange data show.

There will be little room to raise interest rates if economic growth is slow, and the central bank will maintain an “adequately loose” policy stance, Perng said yesterday. The rate decision was predicted by all 27 economists in a Bloomberg survey.

Government bonds declined from Dec. 20 after advancing in the last three weeks. The yield on the 1.25 percent notes due October 2018 increased two basis points, or 0.02 percentage point, to 1.078 percent, according to Gretai Securities Market. The rate was little changed today.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, increased five basis points this week and three basis points today to 3.73 percent.

The overnight interbank lending rate was little changed this week and today at 0.385 percent, a weighted average compiled by the Taiwan Interbank Money Center showed.

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