Taiwanese investors are ramping up purchases of bond exchange-traded funds (ETFs) as they seek to lock in higher yields before a potential US Federal Reserve interest-rate cut.
Local investors poured a net US$6.6 billion into ETFs that track overseas bonds so far this year, the fastest inflow since Taiwan listed its first fixed-income ETF in 2017.
The amount accounts for more than half the total investment by Asia Pacific investors, data compiled by Bloomberg showed.
Photo: CNA
Taiwan investors are buying bond ETFs as fading bets for deep Fed rate cuts this year push up US Treasury yields, making them more attractive than local notes amid the prospect of a steady domestic policy rate this year. The premium offered by 10-year Treasuries over similar bonds in Taiwan widened to the most in three months last month.
“Insurers and retail investors are rushing to catch the final train before the Fed’s interest rate cut, so there’s a new batch of capital flowing into these ETFs in the first half,” CTBC Investments Co (中信投信) fixed-income vice president Ryan Chang (張勝原) said. “Investors are hoping for price gains in addition to high yields of overseas bonds because of a possible Fed pivot.”
Chang sees the local ETF market growing to NT$3 trillion (US$95.15 billion) this year.
Investors from other countries are also making a beeline for US debt. Total outflows from emerging markets into foreign bond ETFs have amounted to about US$815 million so far this year.
However, in Taiwan, bond ETF purchases are weighing on the New Taiwan dollar, which has weakened about 2.6 percent against the US currency so far this year. That contrasts with the benchmark TAIEX, which touched a record high due to demand for artificial intelligence technology.
Bond ETFs makes sense because of the interest-rate differential, Allianz Global Investors chief investment officer for Asia-Pacific fixed income Jenny Zeng (曾崢) said.
“Banks are also buying dollars because of month-end rebalancing,” she said, adding that bond outflows from Asia might ease toward the second half of the year when the Fed starts to cut rates.
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