Taiwan’s Bond Yield Falls to Two-Year Low on Easing Speculation

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Taiwan’s bonds rose, pushing the 10-year yield to the lowest level since 2013, on speculation the central bank will cut interest rates to revive the economy.

The island’s exports contracted for a sixth month in July, according to data issued after the markets closed on Friday, a week after preliminary figures showed second-quarter growth was the slowest in three years. ABN Amro Group NV said monetary easing is becoming more likely this year, while DBS Group Holdings Ltd. forecasts a rate reduction as soon as the next meeting in September if the economy keeps slowing. Taiwan hasn’t adjusted benchmark borrowing costs since June 2011.

“The banking system has turned to refuge assets as the weaker outlook has lowered returns on loans,” said Jeffrey Huang, a fixed-income trader at KGI Securities Co. in Taipei. While the central bank probably won’t ease policy in September, it may comment on slower growth in its statement, which will boost speculation of a rate cut by year-end, he said.

The yield on the sovereign notes due 2025 dropped two basis points to 1.375 percent, Taipei Exchange prices show. That’s the lowest for benchmark 10-year securities since June 2013. The five-year yield was little changed at 0.915 percent.

The gap between 10- and five-year yields narrowed to 46 basis points, the least since January. There is room for the 2025 yield to fall further as the five-year yield is already near its 2013 low of 0.86 percent, Huang said.

Exports declined 11.9 percent last month from a year earlier, more than the median estimate in a Bloomberg survey for a 10.5 percent drop. The government will announce the final second-quarter growth figure on Friday.

Taiwan’s dollar was little changed at NT$31.760 against its U.S. counterpart on Monday, according to Taipei Forex Inc.

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