Taiwan Bond Yield Rises to Three-Month High as Debt Sale Fails

Taiwan’s five-year bond yield climbed to a three-month high after the government failed to meet its target at an auction of similar-maturity notes.

The Ministry of Finance sold NT$35.1 billion ($1.2 billion) of January 2019 securities with a coupon of 1.125 percent today, compared with the NT$40 billion planned, according to a central bank statement. The bonds yielded 1.14 percent at the auction, more than the 1.13 percent median estimate in a Bloomberg News survey. The Federal Reserve’s stimulus tapering drove 10-year U.S. Treasury yields to a two-year high on Jan. 2 on speculation interest rates in the world’s biggest economy will rise.

“The duration might still be too long for banks, which now prefer notes that mature within three years as shorter notes are less risky,” said Cindy Lee, a Taipei-based fixed-income trader at Capital Securities Corp. “Banks may still be cautious as they don’t know if the Fed will quicken tapering, which may trigger a jump in Treasury yields.”

The yield on the new five-year bonds rose three basis points, or 0.03 percentage point, to close in Taipei at 1.1519 percent in the secondary market, according to prices from Gretai Securities Market. The rate climbed in when-issued trading from 1.220 percent on Dec. 27. Today’s yield was the highest for a benchmark of that maturity since Oct. 16.

Investors bid for 1.7 times the amount on offer at today’s auction, lower than the 2.52 ratio at the last five-year government debt sale in October.

Currency Falls

Taiwan’s dollar fell for a second day on speculation the Fed will accelerate its stimulus cuts as the economy improves, reducing fund flows to emerging markets. The U.S. central bank started trimming its debt purchases this month by $10 billion to $75 billion.

U.S. retail sales climbed 0.2 percent in December, topping the median forecast in a Bloomberg survey for a 0.1 percent gain. Philadelphia Fed President Charles Plosser said the economy is on a “firmer footing” and the decision to lower its bond-buying program was a step in the right direction.

Taiwan’s dollar depreciated 0.3 percent to NT$30.236 against the greenback, prices from Taipei Forex Inc. show. It slipped 0.5 percent in the last 23 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 fell for a third day, weakening 0.2 percent to NT$30.085 per U.S. dollar, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, increased 16 basis points to 3.56 percent.

The overnight interbank lending rate was little changed at 0.386 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.

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