Wed, Nov 07, 2007 - Page 12 News List

Bond yields fall after inflation rises to 13-year high

BLOOMBERG

Ten-year government bonds fell after a report yesterday showed inflation quickened to a 13-year high, fueling expectations the central bank would raise interest rates again.

Yields climbed to the highest in almost a month after the statistics bureau said yesterday that consumer prices rose 5.34 percent last month from a year earlier. That was higher than the median estimate of 3.26 percent in a Bloomberg survey of 10 economists. The central bank has raised interest rates for 13 straight quarters to temper inflation.

"Inflation was higher than expected, so the central bank might raise interest rates," said Dengmao Yu, a Taipei-based bond trader at Mega Bills Finance Corp (兆豐票券). "Trading in the bond market is light."

The yield on the benchmark 2 3/8 percent bond due September 2017 climbed 1 basis point to 2.765 percent at 9:31am in Taipei, according to GRETAI Securities Market, the nation's biggest exchange for bonds. Its price fell 0.0840, or NT$84 per NT$100,000 face amount, to 96.6678.

Policy makers raised the discount rate for 10-day loans to banks an eighth of a percentage point to 3.25 percent at their most recent meeting on Sept. 20.

Meanwhile, the central bank said yesterday it would ease restrictions on loans to brokerages so they can provide more funds to customers.

The ceiling on domestic banks' total lending to brokerages, which provide margin-trading accounts, will rise to 2.5 times of the borrower's net worth, from 1.5 at present, the central bank said in an e-mailed statement.

The monetary authority said public comments on the proposal should be sent to the central bank by next Tuesday. It didn't say when the measure will take effect.

KGI Securities Co. (中信證券) and other local brokerages planned to borrow a total of NT$25 billion (US$772 million) from banks last month, the Chinese-language Commercial Times said on Oct. 1, citing unidentified bankers.

The brokerages plan to use the loans to buy shares, as well as to fund client purchases through margin trading accounts, it said.

KGI Securities, based in Taipei, is the brokerage arm of the Koo family, which also controls Chinatrust Financial Holding Co (中信金控), the nation's biggest credit-card issuer.

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