Tue, Jul 10, 2007 - Page 11 News List

Taiwan dollar gains, reversing trend

BLOOMBERG

Taiwan's dollar reversed an early loss to notch up its biggest gain since June 22 on speculation the central bank bought the currency to stem an outflow of capital.

Investors have been borrowing the currency at the island's second-lowest interest rate in Asia after Japan to invest in higher-yielding assets abroad. The currency has weakened along with the yen over the past 12 months as the currencies are favorites for the carry trade.

"The central bank may have sold US dollars heavily just before the close," said Catherine Tan, head of emerging markets at Forecast Singapore Ltd. The bank "caught the market unawares."

strongest close

The Taiwan dollar rose 0.4 percent to NT$32.666 against the US currency at 4pm, the strongest close in six months, according to Taipei Forex Inc. It dropped as much as 0.2 percent to NT$32.864 today. Duann Jin-sheng (段金生), director general of the central bank's foreign-exchange department, couldn't be reached for comment. Taiwan's interest rate of 3.125 percent compares with Japan's 0.5 percent, with a weaker Taiwan dollar further decreasing the value of investments in the island.

Taiwan's 10-year government bonds advanced, ending eight days of losses, on speculation an increase in the cost of borrowing prompted traders to buy back borrowed assets they'd sold hoping to repurchase them at a profit when the price fell, so-called short positions.

cost

The cost for loaning benchmark debt for one day surged to an annual 29 percent from 10 percent last week, according to Eric Hsing of First Taisec Securities Inc.

"The main reason for yields to fall is short sellers covering positions," said Hsing, a Taipei-based bond trader."Costs for short selling tripled."

yield

The yield on the benchmark 1 7/8 percent bond maturing March 2017 declined 5.3 basis points, or 0.053 percentage point, to 2.569 percent, according to Gretai Securities Market, Taiwan's biggest exchange for bonds. The price climbed 0.4330, or NT$433 per NT$100,000 face amount, to 94.1132. Bond yields move inversely to prices.

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