Taiwan Bonds Advance on China Growth Concern; Local Dollar Gains

Taiwan’s bonds advanced, pushing the five-year yield toward the lowest level in three weeks, as concern about an economic slowdown in China spurred demand for government debt. The local dollar gained.

Global funds pulled $163 million from Taiwanese stocks today, taking net sales this week to $870 million, exchange data show. China, Taiwan’s biggest export market, reported a drop in imports for May, while Morgan Stanley, Royal Bank of Scotland Group Plc and UBS AG all lowered their 2013 growth forecasts for Asia’s biggest economy this week.

The yield on Taiwan’s 0.875 percent bonds due January 2018 dropped one basis points, or 0.01 percentage point, to 0.987 percent in Taipei, according to Gretai Securities Market prices. It touched 0.98 percent on June 7, the lowest since May 28, and rose one basis point for the week.

“Investors are getting increasingly worried about China’s economy,” said Sam Chang, a fixed-income trader at Yuanta Securities Co. in Taipei. “Supply of 10-year bonds will trump five-years for the rest of the year, leading to a further widening of the spread.”

The extra yield investors demand to hold the island’s 10-year notes instead of five-year debt widened to 38 basis points today, the most in 21 months. The Ministry of Finance plans to sell NT$35 billion ($1.2 billion) of 10-year securities June 25.

The Taiwan dollar rose 0.6 percent today to NT$29.97 against its U.S. counterpart, Taipei Forex Inc. prices show, and was trading 1 percent stronger one minute before the 4 p.m. close. 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.

Forwards, Volatility

One-month non-deliverable forwards rose 0.2 percent today to NT$29.820 and were down 0.3 percent from the end of last week, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 16 basis points today to 4.73 percent.

The overnight interbank lending rate was little changed at 0.386 percent, according to a weighted average compiled by the Taiwan Interbank Money Center.

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