Taiwan Interest-Rate Swaps Jump to Two-Year High on Taper Bets

Taiwan’s interest-rate swaps rose to a two-year high and government bonds fell on speculation the Federal Reserve will start cutting stimulus next month.

Five-year interest-rate contracts have climbed 34 basis points since Fed Chairman Ben S. Bernanke said on May 22 that the central bank could pare its debt purchases, compared with a 24 basis point increase in benchmark five-year bond yields. Global funds sold $193 million more Taiwanese shares than they bought this week, taking net sales this month to $1.4 billion, according to exchange data.

“Trading volumes on interest-rate swaps have been higher than bonds recently, which is quite unusual for Taiwan,” said Albert Lee, a fixed-income trader in Taipei at Cathay United Bank Co. “Traders are going to use interest-rate swaps to bet on rising yields in the near future, as bond liquidity is just really low now.”

The five-year swaps rose one basis point to 1.385 percent as of 4:28 p.m. in Taipei and touched 1.39 percent earlier, the highest level since May 2011, according to data compiled by Bloomberg. The rate rose six basis points, or 0.06 percentage point, this week.

The yield on the 0.875 percent notes due January 2018 advanced one basis point today and five basis points this week to 1.169 percent, according to Gretai Securities Market.

Sixty-five percent of economists surveyed by Bloomberg expect the Fed to reduce $85 billion of monthly bond buying that has driven fund flows to emerging markets in September.

Taiwan Dollar

The Taiwan dollar strengthened 0.1 percent today to NT$30.002 against its U.S. counterpart, Taipei Forex Inc. prices show. The currency weakened 0.2 percent from Aug. 9. 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 0.2 percent today and this week to NT$29.862 per dollar, data compiled by Bloomberg show. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, gained four basis points today to 3.47 percent.

The overnight interbank lending rate was little changed at 0.384 percent today and this week, a weighted average compiled by the Taiwan Interbank Money Center showed.

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