The central bank said it may step in to ensure stability in the nation's NT$2.9 trillion (US$86 billion) mutual funds industry after investor withdrawals forced five funds to halt redemptions.
An estimated NT$240 billion worth of bond funds have been redeemed this week, according to a Chinese-language newspaper.
The rush is "irrational" and sufficient money will be made available to provide "liquidity to stabilize money markets," the central bank said in a statement.
The government didn't release any figures on size of redemptions.
The problem "was probably caused by Procomp," said Jong Huey-jen (鍾慧貞), deputy director-general at the Securities and Futures Bureau.
She was referring to Procomp Informatics Co's (
"Everybody now panics when hearing about bonds. This is an issue of confidence," she said.
The default sparked a "crisis of confidence" in the quality of financial reporting by companies, Standard & Poor's Ratings Service said in a report earlier this month.
Taiwan's 10-year government bond was little changed as of 4:10pm.
The yield on the 2.375 percent bond maturing in March 2014 rose 0.1 basis point to 2.82 percent, trimming an earlier increase of 7.4 basis points, according the Gretai Securities Market. A basis point is 0.01 percentage point.
"The central bank's promise to maintain stability provided assurance to investors in all financial sectors," said Jim Chen, a bond trader at International Bills Finance Corp (
United Securities Investment Trust Corp (
Two more funds were subsequently halted, Jong said.
According to the securities bureau, the rush of redemptions was triggered by a drop in fund values, after United Securities sold some of the bonds in its portfolios.
United Securities was unable to meet redemptions after "some investors made quick and large redemptions over a short period of time," Jong said.
Redemptions in other bond funds also increased, but the problem should ease quickly, Jong said.
About 78 percent of the nation's mutual funds are invested in bonds, according to the Securities Investment Trust and Consulting Association. Insurance companies are the investors in the funds.
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