Taiwan Five-Year Bonds Advance for Week on Fed Stimulus Optimism

Taiwan’s five-year bonds posted the best week in a month on speculation the U.S. will prolong stimulus that’s buoyed inflows to emerging markets after a budget impasse weighed on the world’s largest economy.

U.S. lawmakers reached an agreement this week to end a 16-day government shutdown and avoid a default. The deal will suspend the debt limit through Feb. 7. Ten-year Treasury yields dropped to a two-month low today after Federal Reserve Bank of Chicago President Charles Evans said the central bank shouldn’t begin reducing its $85 billion of monthly asset purchases.

“Taiwan bonds have been following the direction of U.S. Treasuries,” said Tobby Lin, a fixed-income trader at Yuanta Securities Co. in Taipei. “Since the debt limit has been pushed back to February, investors are guessing the Fed may delay cutting its stimulus until that is resolved.”

The yield on the most-traded 1.25 percent government notes due October 2018 fell seven basis points from a week ago and two basis points today to 1.1119 percent, according to Gretai Securities Market. That’s the biggest drop for a benchmark five0year bond since the period ended Sept. 20.

Global funds bought $857 million more Taiwanese equities than they sold this week, taking net purchases for the year to $7.6 billion, exchange data show. China, Taiwan’s largest export market, reported today that gross domestic product increased 7.8 percent in the third quarter from a year earlier, compared with a 7.5 percent advance in the previous period.

Currency Market

Taiwan’s dollar strengthened 0.2 percent this week to NT$29.446 against the greenback, prices from Taipei Forex Inc. show. That’s the eighth weekly rise for the currency, which was little changed today.

It weakened 0.2 percent in the last 17 minutes of trading amid suspected intervention by the central bank. The monetary authority sold the local dollar 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 declined 0.2 percent this week to NT$29.31 per dollar, according to data compiled by Bloomberg. The contracts were little changed today.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 42 basis points, or 0.42 percentage point, this week and 10 basis points today to 3.31 percent.

The overnight interbank lending rate was steady this week and today at 0.387 percent, a weighted average compiled by the Taiwan Interbank Money Center showed.

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