Taiwan Bond Yield Drops Most in Five Weeks as Output Disappoints

Taiwan’s 10-year bond yield fell the most in almost five weeks as investors sought the relative safety of fixed-income securities amid signs the island’s economy is slowing.

Industrial production climbed 0.78 percent in October from a year earlier, official data showed yesterday, missing the 1 percent median estimate in a Bloomberg survey of economists. The Taiex index of shares slid in the last three weeks, after data showed Taiwan’s economy expanded at the slowest pace in a year in the third quarter. The gauge rose 0.7 percent today. The gap between yields on five- and 10-year sovereign debt widened to 64 basis points last week, the most since August 2004.

“The stock market has been falling, which gave the bond market a boost,” said Eric Hsing, a Taipei-based fixed-income trader at First Securities Inc. “Amid early signs of slower growth, investors were buying five-year bonds, but after the spread between five- and 10-year notes widened and economic data continued to disappoint, they have begun buying 10-year notes as well.”

The yield on the 1.75 percent bonds due September 2023 slipped three basis points, or 0.03 percentage point, to 1.6825 percent in when-issued trading, according to Gretai Securities Market. That’s the biggest decrease for a benchmark 10-year note since Oct. 23 and the lowest level since Nov. 1. The debt will be sold at a Nov. 29 auction.

Taiwan sold NT$30 billion ($1 billion) of 30-year bonds at 2.43 percent today, according to a central bank statement, compared with the 2.45 percent median estimate in a Bloomberg survey of traders and 2.5 percent at the previous sale of similar-maturity debt.

“The auction results were better than expected, so the market interpretation was bullish,” said Ian Wang, a fixed-income trader at Chang Hwa Bank in Taipei.

Currency Market

Taiwan’s dollar strengthened 0.1 percent to NT$29.652 against the greenback, prices from Taipei Forex Inc. show, after slipping 0.2 percent in the last 13 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.

One-month non-deliverable forwards on Taiwan’s currency were little changed at NT$29.553 per dollar, according to data compiled by Bloomberg. The contracts touched NT$29.585 earlier, the weakest level since Nov. 15.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, was little changed at 3.19 percent. The overnight interbank lending rate was steady at 0.386 percent, compared with yesterday’s 0.385 percent, a weighted average compiled by the Taiwan Interbank Money Center showed.

The government will report revised third-quarter gross domestic product data and this year’s growth forecast on Nov. 29.

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