21.04.201408:50:00UTC+00Outlook for Twd Bonds

Quotes from Standard Chartered:

-Our base-case scenario is that the CBC will hike the policy rate in Q2-2014 and accelerate its mopping up of excess liquidity through open-market operations (OMOs). Liquidity tightening should have a gradual impact on short-end rates, given current loose liquidity.

-In addition to OMOs in the interbank system, the CBC has also increased issuance of certificates of deposit (CDs) to manage issue costs. This suggests that the CBC envisages a rising yield environment in 2014.

-We remain Negative on TWD local bonds and expect the shift in the CBC's policy stance and QE tapering to prompt a bear steepening of the TWD bond and TWD IRS curves. We recommend paying 5Y TWD NDIRS (current: 1.29%, entry: 1.34%, target: 1.60%, stop-loss: 1.20%).