Taiwan’s 10-year government bonds joined a worldwide rout in sovereign debt driven by concern that yields are too low amid signs of quickening inflation.
Bonds in the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index yielded 1.31 percent on average, 21 basis points higher from a month ago, as European and US notes fell. Crude oil has rebounded from the six-year low seen in January, a sign that consumer prices might start to pick up again.
The 10-year sovereign yield rose six basis points, or 0.06 of a percentage point, the most since June 18 last year, to 1.64 percent as new notes to be auctioned on May 25 started when-issued trading, Taipei Exchange (櫃檯買賣中心) prices show. Traders are more likely to have a short position, which is a bet on prices falling, on bonds in when-issued trading as they are not settled until a later date.
“Taiwan’s bonds are continuing to reflect the bearish atmosphere in global debt markets,” Hua Nan Securities Co (華南永昌證券) fixed-income trader Sam Chang said. The bonds “have become a target for short sellers since there is no cost in shorting during when-issued trading.”
Prices of US Treasury bonds also fell, pushing the 10-year yield to its highest in almost five months, as eurozone government bonds extended a slump that has wiped out about US$436 billion in global fixed-income markets over the past week.
US securities extended their drop on Wednesday, which came as US Federal Reserve Chair Janet Yellen said yields “could see a sharp jump” when officials raise the benchmark interest rate for the first time since 2006.
“It’s Europe dragging everybody else higher in yields right now,” Bank of Montreal London-based rates trader Barra Sheridan said. “In this selloff, [US] Treasuries have outperformed [German] bunds. We are at crucial levels in these markets.”
European bonds have declined this month as data released last week show eurozone consumer prices halted a four-month drop last month.
In Taiwan, consumer prices fell 0.8 percent last month, more than economists expected, while core inflation remained positive, according to a report issued by the Directorate-General of Budget, Accounting and Statistics this week.
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