Taiwan Bonds Advance as U.S. Data Damps Rate-Rise Speculation

Taiwan’s five-year government bonds rose, pushing the yield down by the most since January, after U.S. economic data that missed estimates damped speculation the Federal Reserve will flag a rate rise this week.

Consumer confidence and producer prices fell unexpectedly last month, reports showed Friday, signaling the U.S. recovery may not yet be robust enough to absorb an increase in borrowing costs. Investors are waiting to see if the Fed will remove its pledge to be “patient” on raising rates after its meeting on Tuesday and Wednesday, a change that would indicate the central bank is preparing to tighten policy.

Short-sellers of Taiwan’s bonds are covering their positions as “they’re concerned there won’t be such a strong wording from the Fed,” said Sam Chang, a fixed-income trader at Hua Nan Securities Co. in Taipei. A short position is a bet an asset’s price will decline.

The yield on the sovereign bonds due March 2020 fell three basis points, or 0.03 percentage point, to 1.114 percent in when-issued trading, Taipei Exchange prices show. That’s the biggest drop for benchmark five-year securities since Jan. 16.

Taiwan’s dollar was little changed at NT$31.712 against the greenback, Taipei Forex Inc. prices show. One-month non-deliverable forwards gained 0.1 percent to NT$31.706, according to Bloomberg-compiled data.

Central bank Governor Perng Fai-nan said last week Taiwan doesn’t have to follow U.S. monetary policy, boosting speculation the island may delay a rate rise as its emerging-market peers from South Korea to China cut borrowing costs.

“Amid expectations Taiwan may not raise rates this year, there’s value in investing in five-year bonds yielding 1.1 percent or above,” said Star Lai, a debt trader at KGI Securities Co. in Taipei. “The conditions aren’t ripe for Taiwan to raise rates this year, plus Perng has signaled its policy doesn’t have to follow the U.S.”

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