Taiwan Five-Year Bonds Drop as Fed Minutes Fuel Rate-Rise Bets

Taiwan’s five-year bonds declined, pushing the yield to a two-week high, on signs U.S. interest rates will be increased sooner than forecast.

Minutes of the Federal Reserve’s July meeting released yesterday showed “many” participants said they might have to raise borrowing costs earlier than they had anticipated because of an improving labor market. Higher U.S. rates would push up Treasury yields and reduce the allure of emerging-market debt.

“The Fed’s July meeting minutes showed there were some voices that wanted to raise rates earlier than expected,” said James Wang, a Taipei-based bond trader at Yuanta Securities Co.

The yield on the 1.125 percent notes due July 2019 climbed two basis points, or 0.02 percentage point, to 1.162 percent, prices from GreTai Securities Market show. That’s the highest rate since Aug. 7.

When asked about Taiwan’s response to a U.S. rate increase, central bank Governor Perng Fai-nan said yesterday the island could use certificates of deposits, Economic Daily News reported today. Taiwan’s monetary authority raised its monthly issuance of two-year certificates, which absorb funds from the financial system, to NT$20 billion ($666 million) in August from NT$10 billion in each of the previous 12 months.

While Perng’s comments revealed nothing new, some short-sellers may be using them as a “theme” to push up bond yields, Yuanta’s Wang said.

The island’s dollar was little changed NT$30.052 against its U.S. counterpart, prices from Taipei Forex Inc. show. One-month non-deliverable forwards were also steady at NT$29.980, according to data compiled by Bloomberg.

One-month implied volatility, a gauge of expected swings in the exchange rate used to price options, increased seven basis points to 2.40 percent.