Taiwan Five-Year Bond Yield Drops Most This Week Since July

The yield on Taiwan’s five-year bonds dropped by the most this week since July amid concern regional economic weakness will hurt the island’s exports. The local currency strengthened.

Bonds rallied as investors sought the relative safety of fixed-income securities. Global funds sold $318 million more local stocks than they bought in the last four days, taking net sales in April to $475 million, exchange data show. Economic expansion in China, Taiwan’s biggest overseas market, slowed in the first quarter as factory output weakened, a sign the nation’s recovery from the slowest expansion in 13 years has lost momentum. South Korea lowered its 2013 forecast last month.

“Sentiment has been in favor of bonds this week,” said Albert Lee, a fixed-income trader in Taipei at Cathay United Bank Co. “Investors are looking for a clearer trend to see whether global growth is really returning to a downward trend.”

The yield on the 0.875 percent notes due January 2018 dropped four basis points, or 0.04 percentage point, this week to 0.939 percent, according to Gretai Securities Market. That was for a benchmark five-year security since the five days ended July 13. The yield advanced two basis points today after touching 0.918 percent yesterday, the lowest level since March 8.

The Taiex index of shares rallied the most in almost five months today after Taiwan Semiconductor Manufacturing Co., the world’s largest contract maker of computer chips, forecast record quarterly sales and increased its spending plan amid rising smartphone demand.

Taiwan Dollar

The Taiwan dollar rose 0.5 percent this week and 0.2 percent today to NT$29.84 against its U.S. counterpart, Taipei Forex Inc. prices show. The central bank has sold the currency in the run-up to the close on most days in the past year, according to traders who asked not to be identified.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 44 basis points since April 12 according to data compiled by Bloomberg. It increased one basis point today. The overnight interbank lending rate was little changed at 0.385 percent, according to a weighted average compiled by the Taiwan Interbank Money Center.