Taiwan Bonds Advance as Lower 14-Day Debt Rate Spurs Easing Bets

  • Central bank signaling it wants to loosen policy, says trader
  • Monetary authority also faced with rising inflation, Fed moves

Taiwan’s five-year sovereign bond yield fell the most in six weeks after a reduction in the interest that the central bank pays on short-term debt spurred speculation that it will lower benchmark borrowing costs for the second time this year.

The monetary authority will sell 14-day certificates of deposit at 0.36 percent on Nov. 9, down from 0.38 percent in October, the Taipei Interbank Money Center said on Thursday. Gross domestic product shrank more than expected last quarter, bolstering the case for a policy rate cut next month.

“The central bank is sending a signal that it wants to loosen monetary policy, so this will increase the chances of another rate cut in December," said Aaron Chien, a bond trader at Taishin International Bank in Taipei. "The GDP report was terrible."

The yield on Taiwan’s 2020 bonds fell four basis points, the most since Sept. 25, to 0.76 percent, Taipei Exchange prices show. The 10-year yield retreated three basis points to 1.188 percent.

Slowing Economy

GDP declined 1.01 percent in the third quarter, the first contraction since 2009. Another factor that will weigh on the central bank’s decision is a potential rate increase by the Federal Reserve this year, which Fed Chair Janet Yellen Wednesday said was possible.

Taiwan’s consumer prices have started to rise again, with a report on Thursday showing 0.31 percent inflation in October, compared with the 0.2 percent advance projected by economists. This marks the second monthly increase after an eight-month decline. The last time Taiwan lowered the rate on 14-day debt was when it was reduced to 0.38 percent from 0.4 percent the day after the first policy rate cut in six years in September.

Taiwan’s dollar weakened 0.4 percent to NT$32.718 against the greenback, Taipei Forex Inc. prices show. One-month non-deliverable forwards fell 0.3 percent to NT$32.454.

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