As the global pile of negative-yielding debt rose to a record US$18 trillion last month, local authorities were working hard to keep the government’s bond yield above zero.
The central bank sold a net US$14 billion worth of certificates of deposit to commercial lenders, the most since early 2012.
Its issuance helped mop up liquidity by tying up excess cash in the financial system. Had the central bank not stepped in and done this, “government bond yields would have already gone negative some time ago,” said Baker Tu (涂瑞勝), a bond trader at Capital Securities Corp (群益金鼎證券).
As the 10-year yield dropped to a record low of 0.24 percent in late November, the Taipei Stock Exchange reviewed the capacity of its bond-trading platform to handle negative yields, Securities and Futures Bureau Deputy Director-General Chou Hui-mei (周惠美) said.
The over-the-counter mechanism would allow for such pricing if required, she said.
However, the yield on long-term government debt has never gone below zero. Central bank governor Yang Chin-long (楊金龍) — who has garnered attention for his so-called “smoothing” of the New Taiwan dollar — has previously said that negative interest rates would adversely affect bank profits.
Local lenders own about 58 percent of the government’s outstanding bonds, central bank data showed.
Yang has not explicitly said that the central bank was using certificates of deposit to mop up liquidity and uphold yields, but in April, after cutting the interest rate to a record low 1.125 percent, he said: “I hope we don’t hit zero.”
Negative yields would also affect local insurers, who have struggled to find suitable investments for their NT$927 billion (US$32.61 billion) pile of bank deposits — the largest since at least 2011. The industry holds almost 14 percent of the government’s debt, the data showed.
Local insurers have limited overseas investment options because financial authorities control their foreign-currency exposure.
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