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Taiwan sells 10-yr bonds, yield below forecasts
Reuters - Tuesday, June 16
* Strong demand from banks, insurers
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* Bond dealers see little change in monetary policy
* Auction result to pressure bond yields in secondary market
By Roger Tung
TAIPEI, June 15 - Taiwan auctioned 10-year treasury bonds at a yield of 1.63 percent, the central bank said on Monday, which was lower than expectations as a result of active demand from banks and insurers that were flush with liquidity.
Bond dealers said they expected no major changes in Taiwan's central bank monetary policy as the economy was still hovering at the bottom, which meant it would likely hold its benchmark discount rate at a record low of 1.25 percent later in June.
They added that the latest auction would likely put some pressure on the yields of Taiwan's benchmark 10-year bonds in the secondary market <A98103=TWO>, which ended 1.1 basis points down at 1.6335 before the auction result was announced.
"We saw banks and insurance firms buying up the bonds during this auction as the amount of bonds issued won't increase by a huge amount this year," said Baker Tu, manager at Capital Securities.
The Taiwan government has been issuing more debt this year to fund public spending aimed at propping up the recession-hit economy, although the amount of bonds issued was not as high as earlier market expectations as it sold more bills.
A Reuters poll of bond dealers had expected the yield between 1.65 percent and 1.70 percent. The T$40 billion worth of bonds will be issued on Thursday.
In a similar auction in March, the central bank sold 10-year bonds with a 1.45 percent yield.
Taiwan's yield curve has been steepening this year after a wave of cuts that brought the island's interest rates to a record low prompted investors to buy up bonds with shorter maturities.
In the secondary market, the yield differential between five- <A98101=TWO> and 20-year bonds <A98102=TWO> widened to 128 basis points from 76 basis points at the beginning of this year.
However, dealers said there was little room for the curve to steepen further as interest rates would be kept unchanged for most of this year.
The central bank will hold its meeting on June 25 when the market expects rates to be unchanged, which would be the second straight time rates are held steady after seven consecutive cuts. [ID:nTP324609]
"I'm expecting rates to stay unchanged during the central bank's rate-setting meeting later this month," said a bond dealer in Taipei.
"Even though Taiwan's economy is supposed to have bottomed out, we have seen a clear improvement in the latest economic data and the stock market has also been falling quite sharply lately," said a bond dealer in Taipei.
Earlier this month, Central Bank Governor Perng Fai-nan said the authority was closely monitoring the core consumer price index and that there was ample liquidity in the financial system, a hint that rate would be kept intact in late June. [ID:nTP225807]
However, some analysts said they did not expect a major shift in monetary policy yet until there were more signs that Taiwan's export-led economy was recovering after its first-quarter GDP contracted by a record 10 percent from a year earlier. (Additional reporting by Rachel Lee and Lin Miao-jung; Writing by Lee Chyen Yee; Editing by Chris Lewis)
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