Taiwan Bond Yields Decline to Two-Year Low on GDP Slowdown Shock

Taiwan’s bonds rose, pushing the 10-year yield to a two-year low, as a report showing a sharp slowdown in second-quarter growth boosted demand for government debt.

Gross domestic product increased 0.64 percent from a year earlier, compared with 3.37 percent in the previous period and the 2.55 percent median estimate in a Bloomberg survey of analysts. Overseas sales probably fell for a sixth month in July, according to a Bloomberg survey before data due next week, as China’s worsening economy damped demand.

“We already knew exports haven’t been strong, but this GDP figure was shocking,” said Tobby Lin, a fixed-income trader at Yuanta Securities Co. in Taipei. “Bond yields have already fallen a lot so in the coming months they may consolidate within a lower range.”

The yield on the sovereign notes due 2025 dropped three basis points to 1.442 percent, Taipei Exchange prices show. That’s the lowest for benchmark 10-year notes since July 2013. The yield fell six basis points in July, its third monthly decline. The five-year yield declined three basis points to a two-year low of 0.923 percent.

Five-year interest-rate swaps, the fixed payment to receive the floating three-month interbank rate known as the Taibor, fell two basis points to 1.207 percent, the lowest since February.

Taiwan’s dollar weakened 0.3 percent to NT$31.682 against its U.S. counterpart, according to Taipei Forex Inc. prices. The currency has fallen 1.9 percent this month, the most since December. One-month non-deliverable forwards dropped 0.4 percent to NT$31.714 and are down 2.7 percent in July, the most since September 2011.

Christy Tan, National Australia Bank Ltd.’s head of markets strategy for Asia, recommended selling six-month NDFs in a report on Friday, citing rising expectations for measures supporting growth, including a rate cut.

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