Taiwan’s 10-Year Government Bond Yield Jumps Most in Three Years

  • Central bank held key rate last month after a year of cuts
  • Two-year bond sale missed target in sign of weaker demand

Taiwan’s government bonds slumped, sending the 10-year yield up by the most since September 2013, on speculation that policy makers will refrain from adding to easing and as concern about an uptick in inflation spurs a global bond selloff.

The yield on Taiwanese sovereign securities due in a decade surged eight basis points on Tuesday to 0.9 percent, its steepest climb in three years and the highest close since February, exchange data show. As recently as August, the debt yielded a record-low 0.625 percent.

Investors in global government bonds have lost 2.8 percent so far in October, a Bloomberg Barclays Index shows, with declines extending after Federal Reserve Chair Janet Yellen indicated a willingness to let U.S. growth run hot in an Oct. 14 speech. Her remarks pushed a debt-market gauge of inflation expectations to the highest in more than five months. In Taipei, 10-year bonds are headed for their worst month in three years after the central bank held the policy rate in September following four straight quarters of reductions.

“Taiwan won’t cut rates any more, so the market is correcting the excessive drop in yields earlier," said Tobby Lin, a fixed-income trader at Yuanta Securities Co. in Taipei. “Traders are facing stop-loss pressure," and are bearish ahead of a sale of five-year bonds later this week, he added.

The finance ministry missed its target at a sale of two-year notes last week as investors asked for higher yields than the government was prepared to offer. The yield on 2021 notes jumped four basis points to 0.64 percent on Tuesday, the highest since December.

Global Yields

Global yields have surged this month as the odds of a interest-rate hike in 2016 implied by Fed fund futures climbed to 66 percent. Taiwan’s monetary authority held its key rate in September, citing an improving outlook for exports and limits to the effectiveness of easing.

Taiwan will sell NT$30 billion ($946 million) of five-year bonds on Thursday.

“Traders have been waiting to stop their losses, but every day the yield has been going up," said Lin. “Recent auction results have been poor, so perhaps people are thinking if they don’t sell now, it’ll be harder after Thursday’s sale."

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