Taiwan dollar and bonds decline as central bank may deter speculators

The government may buy back at least NT$20 billion of bonds next year to rejuvenate the market and prevent foreign investors from parking speculative funds in debt, the Economic Daily News reported yesterday. The central bank circulated a document last week that said capital controls aren't “harmful” for emerging-market economies.

“If the government does impose capital controls, hot money won't be able to come in,” said Ernest Lee, a fixed-income securities trader at Mega Securities Co. in Taipei. “The markets are in panic mood.”

The Taiwan dollar weakened 0.2 percent to NT$32.290 against its U.S. counterpart as of 4 p.m. local time, according to Taipei Forex Inc. The local currency has risen 1.7 percent this year as foreign funds plowed money into the stock market.

Overseas investors have bought US$12.2 billion more Taiwan equities than they sold this year, lifting the benchmark TAIEX stock index 66 percent. They dumped a net NT$1.63 billion yesterday.

The Central Bank of the Republic of China (Taiwan) said in March it had revised regulations on government bonds to allow repurchases of notes that aren't traded frequently. Some foreign investors have put money into such debt, according to Lee.

Ten-year government bonds dropped for a second day. The yield on the 1.375 percent note maturing in September 2019 climbed three basis points, or 0.03 percentage point, to 1.435 percent, according to Gretai Securities Market, Taiwan's biggest exchange for bonds. The price fell 0.2388 or NT$238.8 per NT$100,000 face amount, to 99.4452.

The Commercial Times newspaper said on Oct. 8 the central bank is trying to identify foreign-exchange speculators by searching through bond sales data for September. The bank telephoned commercial lenders last month advising against betting on a U.S. dollar decline, two traders at foreign banks said on Sept. 24, asking not to be identified.

“The bullish trend on bonds has been damaged by the central bank's stated intention to crack down on currency speculation,” said Leo Sun, a fixed-income trader at China Bills Finance Corp. in Taipei.

Capital controls are neither “ineffective nor harmful” for emerging-market economies, according to an excerpt from a United Nations Trade and Development Report that was contained in a document circulated among local media by the Taiwan central bank last week.

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