(Bloomberg) — Taiwan swaps traders are quickly dialing back bets on a sustained increase in policy rates, after the island’s central bank chief signaled that last week’s hike was a one-off.
Most Read from Bloomberg
One-year interest-rate swaps on the Taiwan dollar, a measure of traders’ expectations for funding costs, slipped by the most in over three months on Wednesday, according to data compiled by Bloomberg. That’s a sign investors are paring their bets that will tighten liquidity.
The move came after Governor Yang Chin-long said Taiwan may keep its policy rate steady at its next meeting in June if consumer-price inflation stands between 2% to 2.5%, and if other countries cut their interest rates. He said the March hike should be enough to curb price pressures.
Taiwan’s rates market, which had remained muted throughout last year, came back to life this month after a surge in price pressures prompted the central bank to boost its policy rate to a level unseen since 2008. The hike, which was predicted by none of the economists polled in a Bloomberg survey, triggering the largest single-day advance in more than a decade in government yields and sent rate swaps to the highest since at least 2014.
The rate increase also put Taiwan’s monetary authority at odds with most major central banks, including the Federal Reserve and the European Central Bank, which are eyeing a pivot from policy tightening.
“The rates market is now in a wait-and-see mode,” following the recent surge and the governor’s comments, said Vince Lin, a fixed income trader at Concord Securities. “The market is still trying to find the ceiling in Taiwan’s yields.”
Story continues
Inflation has been a persistent concern for Taiwanese officials. While mild by international standards, the consumer price index has risen at an annual pace exceeding 2% for much of the past three years — above the central bank’s comfort zone. Prices are expected to rise 2.2% for 2024 after a hike of power tariffs from April.
Rates Capped
Taiwan’s one-year interest-rate swaps fell five basis points to 1.675% on Wednesday, according to Bloomberg data.
Investment banks have already started advising clients to trim hawkish bets on Taiwan rates. The risk-reward is becoming more favorable for betting on a decline in rates from here, Philip Yin, a strategist at Citigroup Inc, wrote in a note.
“The front-end rates should be a bit capped now,” said Albert Leung, a strategist at Nomura International in Hong Kong. “With the market fully pricing another 12.5-basis-point hike and perhaps a bit more yesterday, it is not surprising rates come back off today.”
–With assistance from Tania Chen.
Most Read from Bloomberg Businessweek
©2024 Bloomberg LP
Tags: Taiwan Traders Rethink Rate Hike Path Central Bank Hits
-
