Taiwan Bond Yield Touches Two-Month High as Fed Signals Taper

Taiwan’s 10-year bonds fell and the local dollar declined after minutes of the Federal Reserve’s meeting indicated it may cut bond purchases in the “coming months” as the world’s largest economy improves.

U.S. Treasury yields rose yesterday after the record of the Oct. 29-30 Federal Open Market Committee meeting showed policy makers expect economic data to be consistent with its outlook for improvement in labor-market conditions, which would warrant trimming stimulus. U.S. jobs growth topped forecasts last month, a signal the economic recovery is gathering pace. Taiwan’s gross domestic product increased at the slowest pace in a year in the third quarter, while exports dropped in the past two months.

“U.S. Treasury yields jumped last night and demand for longer-dated bonds has been weak,” said James Wang, a fixed-income trader at Yuanta Securities Co. in Taipei. “But the prospect of tapering was already expected in Taiwan, and the domestic economy is sluggish, so yields increased surprisingly little.”

The yield on the 1.75 percent notes due September 2023 climbed two basis points, or 0.02 percentage point, to 1.739 percent in when-issued trading, according to Gretai Securities Market. The rate earlier touched 1.74 percent, the highest for 10-year sovereign debt since Sept. 14. The bonds will be sold at a Nov. 29 auction.

Currency Market

The National Treasury Agency is “seriously considering” offering more 10-year government debt next year because of demand from traders, deputy director-general Chen Hsueh-shiang said today after a meeting yesterday. Taiwan’s government has sold NT$115 billion ($3.9 billion) of 10-year notes this year.

Taiwan’s dollar dropped 0.2 percent to NT$29.636 against the greenback, prices from Taipei Forex Inc. show, after slipping 0.2 percent in the last 10 minutes of trading amid suspected central bank intervention. The monetary authority has sold the currency in the run-up to the close on most days since March 2012, according to traders who asked not to be identified.

Taiwan’s central bank reported a $14.9 billion current-account surplus yesterday for the third quarter, compared with a revised $14 billion in the previous three months. Export orders rose 3.2 percent in October, data showed yesterday, beating the median estimate of 0.8 percent in a Bloomberg survey.

One-month non-deliverable forwards on Taiwan’s currency slipped 0.3 percent to NT$29.525 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, fell four basis points to 3.17 percent. The overnight interbank lending rate was little changed at 0.385 percent, compared with yesterday’s 0.386 percent, a weighted average compiled by the Taiwan Interbank Money Center showed.

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