Taiwan bond traders predict a year-long rally will end this quarter as the annual peak season for exports begins, helping stabilize the economy and reducing the need for another interest-rate cut.
The 10-year government yield will round out this year at 1.2 percent, compared with Tuesday’s close of 1.18 percent, according to the median estimate of the 35 surveyed by Bloomberg.
Twenty bond traders forecast that the central bank at its next meeting in December is likely to keep the benchmark policy rate at 1.75 percent, while 15 see it adding to last month’s first cut since 2009.
The 10-year bond yield hit a record low of 1.06 percent last quarter, after the central bank reduced the policy rate and cut the overnight lending rate between banks.
“If economic data stabilize in the fourth quarter, the central bank might not need to use its interest-rate tools again,” Capital Securities Corp (群益證券) fixed-income trader Tommy Gu said. “Even if it cuts rates again, the market’s reaction will be increasingly small, making it unlikely that yields will fall to record lows again.”
The economic slowdown should bottom out this quarter amid an expected upturn in seasonal electronics demand, analysts at DBS Group Holdings Ltd wrote in a Sept. 25 research note.
Christmas orders from the US, Taiwan’s second-biggest export market, should precipitate a recovery in electronics in the near term, according to a report from Barclays PLC on Sept. 23.
The central bank might also have to consider the impact another rate cut would have on capital outflows, as higher US borrowing costs could potentially reduce the appeal of Taiwanese assets, just as local bond supply increases.
The government is scheduled to sell NT$60 billion (US$1.82 billion) worth of 10-year notes this quarter, up from NT$35 billion in the past three months.
In a move intended to boost liquidity in local bonds, the Taipei Exchange said on Sept. 25 it plans to ban single companies from owning more than one-third of five or 10-year securities auctioned for the first six months of secondary-market trading.
That would help cap purchases by institutions such as state-backed Chunghwa Post Co (中華郵政), which had NT$6.5 trillion of assets as of the end of last year.
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