5-year bonds gain most in 2 weeks; currency rises

The yield on the notes fell to the lowest level in more than a month after Taiwan yesterday sold NT$40 billion of five-year bonds, receiving bids for 1.99 times the amount on offer compared with 1.93 times at the previous sale in April. The island's currency advanced as overseas investors bought about US$1 billion more local equities than they sold this week, according to stock-exchange data.

“A lot of money is going into the bond market,” said Eric Hsing, a debt trader at First Securities Inc. in Taipei. Even so, the yield is still too low after the central bank raised interest rates last month and signaled further increases, he said.

The yield on Taiwan's 2 percent government note maturing in July 2015 slid 3.3 basis points, or 0.033 percentage point, to close at 0.984 percent, according to Gretai Securities Market, the island's biggest exchange for bonds. That's the largest decline for a benchmark five-year note since June 29. A basis point is 0.01 percentage point.

The Central Bank of the Republic of China (Taiwan) unexpectedly raised borrowing costs on June 24 for the first time since 2008, increasing the discount rate on 10-day loans to 1.375 percent from a record-low 1.25 percent. The central bank said the move reflected the global and domestic recoveries, the island's falling jobless rate and significant export gains.

Taiwan Thursday sold five-year notes at a yield of 1.011 percent yesterday, versus 1.007 percent in April.

The island's dollar had a weekly loss of 0.1 percent as the central bank intervened to counter appreciation that may hurt exports, according to traders familiar with the monetary authority's operations, who declined to be identified.

The currency rose 0.1 percent to NT$32.143 against its U.S. counterpart yesterday and touched NT$32.001 on July 9, the highest level since June 28, according to Taipei Forex Inc. It ended last week at NT$32.125.

China on July 13 appointed a bank in Hong Kong to arrange yuan settlement for Taiwanese lenders, which may help facilitate more trade with the mainland. Taiwan signed a trade pact with China, known as the Economic Cooperation Framework Agreement, on June 29, improving the outlook for the island's exports and investment.

“The inflows will not stop because the ECFA has been signed,” said Hsing. “There's a lot of reason for the Taiwan dollar to be stronger. The governor of the central bank will only slow the momentum so the Taiwan dollar will not be volatile.”

Taiwan's gross domestic product will expand 6.94 percent this year, according to an estimate from the Taipei based Chung- Hua Institute for Economic Research today, which raised its forecast from a previous estimate 4.99 percent.

The local currency will rise to an average NT$31.51 against the dollar this year and to NT$30.85 against the dollar in 2011, Chung-Hua said in a statement.

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