Taiwan’s domestic bond market is well known for its contradictory tendencies. Although the overall market is periodically the second largest in Asia behind Japan’s (from time to time edging South Korea’s market into third place) the volume of trading done is often pitifully small. “When interest rates are falling there is tremendous liquidity,” says one local dealer. “When rates begin to rise, securities houses stop trading in the Taiwan market and liquidity shrinks to nearly zero.
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