Local bonds are showing little prospect of recovery after being the only government securities in emerging Asia to hand investors a loss in the third quarter.
Yields on Taiwan’s 10-year notes will climb eight basis points to 1.8 percent by year-end, said Stone Chang (張世東), who manages the nation’s sole domestic bond fund, while Taipei Fubon Commercial Bank (台北富邦銀行) predicts 1.86 percent.
Taiwan’s sovereign debt lost 1.1 percent last quarter as local insurance companies took advantage of rule changes to buy higher-yielding foreign-currency bonds.
“The chips in Taiwan’s bond market are in a mess,” Chang, who oversees the NT$3.4 billion (US$112 million) Prudential Financial Return Fund, said in a telephone interview on Sept. 23. “Insurers now have no reason to hold a position returning about 1.7 percent.”
Losses for bonds last quarter compared with a 2.7 percent return in South Korea, according to Bloomberg indexes. Gains were 2.6 percent in Thailand and 0.5 percent for US Treasuries.
In Taiwan, weaker insurer demand is starting to show in sovereign debt auctions. The Ministry of Finance sold 10-year bonds last week at the highest yield in a year, with insurers buying none of the securities, compared with the average 8.3 percent they purchased at auctions in the past five years.
“Insurers are not as desperate as before to buy Taiwan’s government bonds, as there have been many international bond sales offering higher rates,” Jeffrey Huang, a Taipei-based fixed-income trader at KGI Securities Co (凱基證券), said on Friday last week.
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