Taiwan Interest-Rate Swaps Hit 2011 High on Fed Tapering Concern

Taiwan’s interest-rate swaps rose to the highest level since June 2011 on speculation the Federal Reserve will start cutting bond purchases next month that have driven demand for emerging-market assets.

Five-year contracts have climbed 32 basis points since Fed Chairman Ben S. Bernanke indicated on May 22 that the central bank could pare its monetary stimulus, compared with a 33 basis-point increase on benchmark 10-year bond yields. Global funds sold $235 million more Taiwanese shares than they bought today, taking net sales this month to $1.4 billion, according to exchange data.

“At the moment, short-selling of bonds is difficult as liquidity isn’t good enough,” said Ray Cheng, a fixed-income trader at Sinopac Securities Corp. in Taipei, referring to a trade where investors sell a borrowed asset in the hope of buying it back at a lower price. “Interest-rate swaps are a better tool to bet on rising yields.”

The swaps were little changed at 1.37 percent as of 4:56 p.m. in Taipei and touched 1.38 percent earlier, the highest level since June 2011, according to data compiled by Bloomberg.

The overnight interbank lending rate was little changed at 0.385 percent, a weighted average compiled by the Taiwan Interbank Money Center showed.

Taiwan Dollar

Ten-year government debt fell for a third day, with the yield rising one basis point, or 0.01 percentage point, to 1.62 percent, according to Gretai Securities Market. The yield on the 0.875 percent notes due January 2018 dropped one basis point to 1.155 percent.

The Taiwan dollar was little changed at NT$30.035 against its U.S. counterpart, compared with NT$30.032 yesterday, Taipei Forex Inc. prices show. The currency was 0.1 percent stronger 15 minutes before the 4 p.m. close.

The central bank has sold its currency in the run-up to the close on most days since March 2012, according to traders who asked not to be identified.

One-month non-deliverable forwards rose 0.1 percent to NT$29.93 per dollar, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, gained four basis points to 3.49 percent.

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