Taiwan 10-Year Bonds Gain as Italy Poll Boosts Demand for Safety

Taiwan’s government bonds rallied, pushing benchmark 10-year yields down by the most in five months, on demand for safety amid concern Italy’s elections will worsen Europe’s debt crisis.

Stock indexes dropped across Asia on speculation Italy may require a second vote after election results pointed to a divided parliament that may complicate budget austerity efforts. The local currency fell as global funds sold $95 million more stocks than they bought yesterday, the most after Thailand among nine Asian markets outside Japan, according to exchange data.

“The election has caused uncertainties across the global market,” said Albert Lee, a fixed-income trader in Taipei at Cathay United Bank Co. “The drop in yields is especially drastic today as people are buying back bonds cover their positions.”

The yield on the 1.125 percent bonds due March 2023 fell more than one basis point to 1.211 percent, according to Gretai Securities Market, the most since Oct. 3. The overnight interbank lending rate was steady at 0.388 percent, according to Taiwan Interbank Money Center.

The island’s currency fell 0.1 percent to close at NT$29.74 per dollar, based on prices from Taipei Forex Inc. One-month non-deliverable forwards fell 0.2 percent to NT$29.625, according to data compiled by Bloomberg.

One-month implied volatility in the Taiwan dollar, a gauge of expected moves in exchange rates used to price options, dropped eight basis points, or 0.08 percentage point, to 5.05 percent, data compiled by Bloomberg showed.

The island’s exports grew 18 percent in January from a year earlier, following an 8.5 percent gain in December, according to the median estimate in a Bloomberg News survey. That would be the biggest jump since August 2010. Economists predicted a 17.6 percent gain in a Bloomberg News survey.

The statistics office on Feb. 23 raised its economic growth forecast for 2013 to 3.59 percent from 3.53 percent, as shipments and consumption rebounded. The island’s economy grew 1.26 percent in 2012, the slowest in three years.

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