Investors bought the securities after the early decline made bond prices more attractive, said Arthur Hu, a bond trader at International Bills Finance Corp. in Taipei. Ten-year notes slumped at the start of trading after the central bank Wednesday drained funds from the banking system by unexpectedly selling NT$239.2 billion of short term securities.

“People were overly panicky in early trading,” Hu said. “Some investors entered the market in the middle of the trading” after the surge in yields, he said.

The yield on the benchmark 1 7/8 percent bond due March 2017 rose 0.1 basis point, or 0.001 percentage point, to 2.014 percent at 4:00 p.m. in Taipei, after earlier climbing as much as 4.9 basis points, according to Gretai Securities Market, Taiwan’s biggest exchange for bonds. The price fell 0.0061, or NT$6.1 per NT$100,000 face amount, to 98.7613.

The central bank raised its benchmark discount rate on 10-day loans to banks by an eighth of a percentage point to 2.875 percent on March 29. By withdrawing cash from the financial system, the monetary authority can bring market rates closer to its benchmark.

The spread of Taiwan’s 10-year yields over similar-dated U.S. Treasuries narrowed to 2.71 percentage points, compared with 2.76 percentage point on April 9, according to data compiled by Bloomberg.

The Taiwan dollar, little changed yesterday, stayed within 0.2 percent of a four-month low reached on March 20 on speculation investors will shift funds overseas to seek higher returns.

The currency weakened 1.6 percent this year as the island’s benchmark interest rate of 2.875 percent is the second-lowest in Asia after Japan’s 0.5 percent, encouraging local fund managers to buy higher-yielding assets elsewhere.

“Even with the local yields up, they are still lower than many other countries and so it won’t prevent local investors from moving funds overseas,” said Sadaaki Kondou, assistant general manager of the treasury department at Mizuho Corporate Bank Ltd. in Taipei. “The spread is still wide and the Taiwan dollar may remain under weakening bias.”

The Taiwan dollar closed onshore trading at NT$33.105, according to Taipei Forex Inc. The currency may drop as low as NT$33.23 this week, Kondou said.

The island’s relatively low rates have encouraged an outflow of cash. The deficit on the financial account, which measures investment flows, was at US$7.8 billion in the fourth quarter compared with US$5.11 billion in the previous three months. The island has posted six quarters of shortfalls.

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