Taiwan Bonds Advance Before Rate Decision Amid Europe Concerns

Taiwan’s government bonds rose, halting a three-day drop, as economists predict the central bank will keep its benchmark interest rate unchanged for a seventh straight meeting as growth falters. The currency was steady.

Ten-year note yields dropped to the lowest in almost two weeks as stocks tumbled amid concern Europe’s debt crisis will escalate and after China tightened rules on so-called wealth management products. Reports this month showed the island’s industrial production shrank in February and export orders fell by the most since May 2009. The central bank will hold the discount rate for 10-day loans at 1.875 percent today, according to all 20 economists in a Bloomberg News survey.

“The central bank remains cautious on the economic outlook, therefore the market expects easy policy to continue,” said Tarsicio Tong, a currency trader at Union Bank of Taiwan. “Bond yields can still drop while I expect the currency to stay near current levels to be competitive.”

The yield on the 1.125 percent bonds due March 2023 declined two basis points, or 0.02 percentage point, to 1.295 percent in Taipei, according to Gretai Securities Market. That’s the lowest since March 18. The overnight interbank lending rate was steady at 0.388 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.

The central bank will announce its decision at 5 p.m. local time. It has kept the key rate at 1.875 percent since June 2011. Governor Perng Fai-nan said in a December review that growth will be “steady and slow” in 2013, citing European and U.S. debt issues.

Inflation Outlook

Consumer prices jumped 2.97 percent in February from a year earlier versus 1.13 percent in January, the government said on March 5. Economists forecast inflation will average 1.4 percent next quarter, a Bloomberg survey shows.

Taiwan’s dollar erased a 0.2 percent to end steady from yesterday at NT$29.940 against its U.S. counterpart, according to Taipei Forex Inc. One-month non-deliverable forwards dropped 0.1 percent to NT$29.890.

One-month implied volatility in the Taiwan dollar, a gauge of expected moves in the exchange rate used to price options, was little changed at 3.54 percent, according to data compiled by Bloomberg.

Taiwan’s central bank has sold the local currency in the run-up to the close on most days in the past year, according to traders who asked not to be identified.

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