Taiwan 10-Year Bond Yields Rise to 7-Month High on Stock Rally

Taiwan’s government bonds declined, sending the 10-year yield to the highest level in seven months, as stocks rallied on prospects the opening of a local yuan market will boost bilateral trade.

Forty-six Taiwanese banks can start taking deposits in the Chinese currency from today and trade yuan on the interbank market, the central bank said yesterday. The Taiex index of shares rose to the highest level since March, while exchange data show global funds have bought $1.6 billion more equities than they sold this year.

“Stock sentiment has been very bullish because of the prospect of yuan business and tighter China ties,” Frances Cheung, a Hong Kong-based strategist at Credit Agricole CIB, wrote in a research note today. “Taiwan yields should gradually trend up in the near future.”

Borrowing costs on the 1.125 percent notes due March 2023 rose to 1.215 percent from 1.212 percent yesterday, the highest level since July 6, according to Gretai Securities Market.

On the first day of trading, the yuan was at 6.2155 per dollar in Taipei, with 54 transactions recorded, according to Taipei Forex Inc. In Hong Kong’s offshore market, the currency was little changed at 6.2158, while it weakened 0.04 percent to 6.2320 in the onshore Shanghai market.

The Taiwan dollar declined 0.1 percent to NT$29.622 against its U.S. counterpart, according to Taipei Forex Inc. It reached NT$29.700 on Jan. 29, the weakest level in more than four months. The central bank has sold the local currency near the close on most days in the past 10 months, according to traders who asked not to be identified.

One-month implied volatility in the Taiwan dollar, a gauge of expected moves in the exchange rate used to price options, rose 14 basis points, or 0.14 percentage point, to 4.09 percent, according to data compiled by Bloomberg.

The overnight interbank lending rate was little changed at 0.385 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.

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