The nation’s benchmark 10-year sovereign bond yield fell below 1 percent for the first time ever after the government said it would reduce the amount of debt issued next quarter.
The Ministry of Finance plans five bond sales to raise NT$155 billion (US$4.7 billion) in the first quarter of next year, according to a statement posted on its Web site on Wednesday.
That compares with NT$230 billion in the first three months of this year.
The ministry is targeting a total of 19 bond sales next year. Prices of bonds also advanced when the central bank cut its benchmark interest rates last week.
“The reduction in sales boosts demand for the bonds as there is already not enough supply,” said Tobby Lin, a bond trader at Yuanta Securities Co (元大證券) in Taipei.
Bond yields were pushed down this week as disappointing economic data fueled speculation that the central bank would ease monetary policy again after delivering two interest-rate cuts this year.
On Thursday last week, the central bank cut its policy rates by another 12.5 basis points for a second straight quarter, marking a divergence from the US, as a contraction in exports shows no signs of a recovery.
The yield on government bonds due in 2025 yesterday fell five basis points to 0.9814 percent on the Taipei Exchange. The five-year yield dropped 2.74 basis points to 0.5874 percent, the lowest on record, according to Taipei Exchange data.
The New Taiwan (NT) dollar has declined 3.4 percent against the greenback this year and is heading for its third yearly loss in a row.
On Thursday, the NT dollar rose NT$0.098 to close at NT$33.002 versus the greenback on Taipei Forex Inc, as local exporters rushed to raise their holdings in the local currency to meet year-end fund demand, dealers said.
It was the sixth consecutive session in which the US dollar closed above the NT$33 level on the back of the central bank’s support. The level is believed to be the central bank’s bottom line in the short term.
Capital Securities Corp (群益證券) on Monday said in a client note that the central bank is expected to maintain its policy interest rates at a monetary policy meeting scheduled for March 24 next year, in view of the nation’s gradual economic recovery, mild inflationary pressures and ample liquidity in the money markets.
The central bank is unlikely to cut its benchmark rates next year because further reductions could risk accelerating capital outflows, Zhou Hao (周浩), a Singapore-based economist at Commerzbank AG, said in an interview yesterday.
He expects the 10-year bond yield to rebound, rising toward 1.2 percent next year.
Additional reporting by staff writer and CNA
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