Taiwan 10-Year Bond Yield Rises to Highest in 2014 on Inflation

Taiwan’s 10-year bonds fell, pushing the yield to the highest level this year, as inflation beat estimates and signs of faster U.S. growth reinforced bets the Federal Reserve is moving toward higher interest rates.

The island’s consumer prices rose 2.07 percent in August from a year earlier, compared with the 1.8 percent median estimate in a Bloomberg survey. American service industries expanded at the fastest pace since 2005 last month, according to the latest figures, while data today is forecast to show U.S. payrolls increased by more than 200,000 for a seventh month. A stronger economy will enable the Fed to tighten monetary policy, reducing fund flows to emerging markets.

“The market already expected Taiwan’s CPI to be higher in August, but it was actually higher than 2 percent because of base effects, which was still surprising to some,” said James Wang, a Taipei-based bond trader at Yuanta Securities Co. “Recent U.S. economic data has been better than expected, and traders are now speculating that tonight’s non-farm payrolls won’t be too bad.”

The yield on Taiwan’s 1.625 percent notes due September 2024 rose six basis points, or 0.06 percentage point, to 1.690 percent in when-issued trading, prices from GreTai Securities Market show. That’s the highest for benchmark 10-year securities since Dec. 6, 2013. The benchmark yield increased 10 basis points this week.

Insurer Quota

Companies have sold $6.6 billion of foreign-currency bonds in Taiwan since the legislature excluded locally listed debt from insurers’ overseas investment quotas in May. Insurers have been gradually selling their Taiwan dollar notes, Yuanta’s Wang said. The industry holds about 25 percent of outstanding sovereign notes, central bank data show.

Taiwan’s dollar fell 0.1 percent today and this week to NT$30.002 against its U.S. counterpart, prices from Taipei Forex Inc. show. Today’s drop was the largest since Aug. 1. One-month non-deliverable forwards declined 0.1 percent today and 0.2 percent this week to NT$29.900, according to data compiled by Bloomberg.

One-month implied volatility, a gauge of expected swings in the exchange rate used to price options, fell one basis point today and two basis points this week to 2.51 percent.

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