Taiwan Bond Yields at Record Low as Overnight Rate Said Reduced

  • Move spurs speculation the policy rate will be cut in March
  • Money-market rates had risen because of the upcoming holiday

Taiwan’s government bond yields tumbled to a record after the central bank was said to have lowered the overnight guiding rate, adding to expectations it will cut the benchmark rate when it next meets in March.

The monetary authority reduced the rate on overnight funds to 0.2 percent from 0.23 percent, according to people familiar with the matter. A report showed Friday the economy shrank in the fourth quarter as exports slumped, adding to the urgency of further easing. Money-market rates also climbed in the past week as demand for cash rose before the Lunar New Year holiday beginning Feb. 8.

“This lowers short-term rates and further strengthens expectations that the central bank will cut rates in March," said Edward Chang, a bond trader at Taipei Fubon Commercial Bank Co. "Money market rates had been relatively tight recently because a long holiday is coming up."

The yield on Taiwan’s 2025 bonds dropped seven basis points to close at 0.908 percent, a record-low close for benchmark 10-year notes, Taipei Exchange prices show. The five-year yield plummeted eight basis points to 0.52 percent, also touching its lowest ever. Saturday was an extra working day in Taiwan to make up for an added day off for the Lunar New Year holiday next month.

Economic Data

While the overnight rate is usually lowered in conjunction with policy-rate cuts, the central bank also reduced the overnight rate in August before cutting the benchmark rate in September. The one-day certificates of deposit are sold by the central bank daily to adjust cash supply and the rates and volumes aren’t released publicly. The people who spoke to Bloomberg News asked not to be identified because they’re not authorized to speak publicly.

The local economy shrank 0.28 percent in the three months through December from a year earlier, marking the second straight quarter of contraction.

Taiwan’s dollar fell 0.2 percent to NT$33.650, according to prices from Taipei Forex Inc. It typically gains in the morning to make up for ground lost during intervention toward the close on the previous day. The currency jumped the most since November on Friday as stock inflows surged after the Bank of Japan unexpectedly boosted its stimulus.

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