Taiwan Bond Yield Rises Most Since 2010 in July on Fed Concern

Taiwan’s bonds fell this month, with the benchmark five-year yield rising the most since December 2010, on speculation the Federal Reserve will start tapering its asset purchases this year.

The U.S. monetary authority may give further clues after the end of a two-day meeting today on when it will begin paring the stimulus that has boosted demand for emerging-market assets. Local bonds dropped for a third day after the Ministry of Finance set the cutoff yield higher than traders expected at a 30-year bond auction yesterday.

The yield on the 0.875 percent notes due January 2018 rose 12 basis points, or 0.12 percentage point, this month to 1.12 percent in Taipei, according to Gretai Securities Market.

“We’re waiting to see if the Fed is going to send more definite signals on when the tapering will begin,” said James Wang, a fixed-income trader at Yuanta Securities Co. in Taipei. “The yield the finance ministry set yesterday was closer to what traders would accept, and concern over the MOF reining in rising yields in the primary market has eased.”

The MOF sold NT$26.3 billion ($878 million) of 30-year notes yesterday, short of the NT$30 billion offered, at a cutoff yield of 2.5 percent, according to an official statement. Traders in a Bloomberg survey expected it to be 2.3 percent.

Dutch Auction

Taiwan sells bonds through Dutch auctions where investors bid on the yield and the government sets the coupon by taking the highest winning offer. While a cutoff yield is set at each sale, the Treasury only imposes it if the highest bid exceeds the limit.

The Taiwan dollar was little changed in July at NT$30.12 and fell 0.4 percent today against the greenback, Taipei Forex Inc. prices show. Global funds bought $2.8 billion more Taiwan stocks than they sold this month, according to exchange data.

The local dollar rose 0.1 percent 14 minutes 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.

One-month non-deliverable forwards slipped 0.2 percent this month and today to NT$30.01, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 148 basis points in July to 3.965 percent. It rose 11 basis points today.

The overnight interbank lending rate was steady at 0.388 percent, according to a weighted average compiled by the Taiwan Interbank Money Center.

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