Yields on Taiwan’s five-year government bonds jumped to their highest level since 2008 as tighter banking-system liquidity and growing expectations of higher interest rates weighed on demand for local debt.
The yield rose 32bps to 1.71%, the highest since November 2008 and an auction of 10-year bonds saw the highest yield since 2013. The moves came as seasonal tax payments drained money from the banking system, leaving lenders with a smaller pool of cash to invest in government debt.
Underscoring the liquidity crunch, Taiwan’s outstanding negotiable certificates of deposit fell Monday to the lowest level since 2014. The decline points to lenders curbing NCD purchases to preserve funding. That’s adding to expectations that the central bank will keep policy restrictive after consumer inflation exceeded its alert threshold in May.
“We currently have a 3Q 2026 rate hike penciled in, as energy prices could pick up again in the coming months if oil flows from the Middle East remain disrupted,” said Lynn Song, chief economist for Greater China at ING Bank NV.
Taiwan’s central bank is expected to announce its policy decision on June 18, just after the Federal Reserve’s rate decision. Australia & New Zealand Banking Group Ltd. expects a one-off rate hike in Taiwan in September but sees an earlier move in case of a more hawkish stance from the Fed.