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Formosa bond

Category — Bond Types
By Konstantin Vasilev Member of the Board of Directors of Cbonds, Ph.D. in Economics
Updated October 11, 2023

What is a Formosa Bond?

A Formosa Bond, also known as a Formosa Note, is a type of bond issued in Taiwan international bond market. These bonds are typically denominated in a currency other than Taiwan dollars (TWD) and are issued by foreign companies or international bond issuers to raise capital. Formosa Bonds are so named because they were initially introduced in Taiwan, specifically on the Taipei Exchange, and have since gained popularity in international financial markets.

These bonds offer foreign borrowers access to Taiwan’s domestic investors and financial institutions, allowing them to tap into a new funding source. The term "Formosa" is often associated with Taiwan, and these bonds have become an integral part of the country’s financial landscape.

Formosa Bonds have gained traction among international investors in recent years due to their attractive interest rates. They allow foreign companies and borrowers to diversify their funding sources while accessing Taiwan’s robust capital markets.

Formosa bond

Origins and Evolution of Formosa Bonds

The history of Formosa Bonds dates back to the early 2000s, with its major proponent and designer being Lee Shyan-yuan, a board member of Taiwan’s market regulator, the Financial Supervisory Commission (FSC). Lee Shyan-yuan was pivotal in developing and promoting this innovative financial instrument.

The name "Formosa Bond" was officially chosen through a contest organized by the FSC in September 2006. The name "Formosa" is an alternative name for the island of Taiwan and was selected to represent the region’s unique characteristics. During the contest, participants were invited to suggest names that would reflect Taiwan’s special qualities. In total, 15 names were proposed, including two different Chinese-language versions of "Formosa bond," "C-Wang Bond," and "High-Tech Island Bond." Participants were also encouraged to come up with their own suggestions for the bond’s name.

The results of the contest were announced on September 25, 2006. "Formosa Bond" emerged as the most popular choice, receiving a significant 5,776 votes, which accounted for 57.16% of the total votes cast. In contrast, the second-most popular choice, "Taiwan 101 Bond," garnered only 1,229 votes, while the third-most popular choice, an alternative Chinese translation of "Formosa Bond," received a mere 618 votes.

This naming contest marked the beginning of Formosa Bond’s journey, and it has since become a widely recognized and utilized financial instrument in Taiwan’s international bond market. It has played a significant role in attracting foreign companies and borrowers to Taiwan’s capital markets, offering them a unique opportunity to access domestic investors and diversify their sources of funding.

Characteristics of Formosa bonds

These foreign currency bonds possess several distinct characteristics, making them a unique financial instrument in the international bond market.

  1. Credit Rating Requirement. Formosa Bonds must meet a stringent credit rating standard, typically requiring a minimum rating of BBB or higher. This requirement ensures that issuers maintain a certain level of creditworthiness, providing a degree of security for domestic and international investors.

  2. Trading Platform. Formosa debt sales take place on designated platforms. When trading among securities firms within Taiwan, the GreTai Securities Market’s Electronic Bond Trading System is the preferred channel. This electronic system streamlines the trading process, enhancing efficiency and transparency.

  3. Overseas Exchange Listing. Formosa Bonds may also be listed on overseas exchanges, broadening their reach to international investors. In such cases, trading can occur between dealers through the over-the-counter (OTC) market. This flexibility allows for greater accessibility and liquidity, further attracting foreign investors.

How do Formosa bonds work?

  1. Issuers and Issuance.

    • Formosa Bond Issuers. Foreign companies or international bond issuers typically issue Formosa Bonds.

    • Credit Rating Requirement. To qualify for issuance, these bonds must carry a credit rating of BBB or higher, ensuring a certain level of creditworthiness.

  2. Listing and Trading.

    • Taipei Exchange Listing. Formosa Bonds can be listed on the Taipei Exchange, providing them with a platform for exposure to domestic investors.

    • Overseas Exchange Listing. Some Formosa Bonds may also be listed on overseas exchanges, expanding their reach to international investors.

  3. Access to Domestic Investors.

    • Domestic Investors. Formosa Bonds allow foreign borrowers to access Taiwan’s domestic investors, offering them an opportunity to diversify their sources of funding.

    • GreTai Securities Market’s Electronic Bond Trading System. Trading between securities firms within Taiwan is typically conducted using this electronic trading system, ensuring efficiency and transparency.

  4. International Accessibility.

    • International Investors. Formosa Bonds attract international investors due to their attractive interest rates.

    • Over-the-Counter (OTC) Market. If a Formosa Bond is listed on an overseas exchange, it can be traded between dealers using the over-the-counter (OTC) market, providing flexibility and liquidity.

  5. Denomination. Formosa Bonds are typically denominated in a currency other than Taiwan dollars (TWD).

  6. Globalization. Formosa Bonds have played a significant role in Taiwan’s financial market’s globalization efforts, attracting foreign companies and borrowers.

Advantages and Challenges of Formosa Bonds for Investors


  1. Attractive Interest Rates. Formosa Bonds often offer competitive interest rates compared to bonds denominated in other currencies. This can be particularly appealing to yield-seeking investors.

  2. Currency Diversification. Formosa Bonds are typically denominated in currencies other than TWD, allowing investors to diversify their currency exposure, which can be valuable in managing foreign exchange risk.

  3. Access to Taiwan’s Market. Formosa Bonds provides international investors with a gateway to Taiwan’s domestic market, which can benefit those looking to expand their investment horizons.

  4. Liquidity. Trading in Formosa Bonds is facilitated through various channels, including electronic systems and over-the-counter markets, providing liquidity and ease of buying and selling.


  1. Credit Risk. While Formosa Bonds typically require a minimum credit rating of BBB or higher, inherent credit risk is still associated with any bond investment. Investors need to assess the creditworthiness of the issuer carefully.

  2. Limited Issuers. The pool of Formosa Bond issuers may be limited compared to other bond markets. Investors might have fewer options when it comes to choosing bonds that match their risk tolerance and investment objectives.

  3. Interest Rate Risk. Like all fixed-income securities, Formosa Bonds are subject to interest rate risk. If interest rates rise, the value of existing bonds may decline.

  4. Market Knowledge. Understanding the nuances of the Taiwanese bond market and the specific terms and conditions of Formosa Bonds can be challenging for international investors.

Regulatory Aspects of Formosa Bond Market

  1. Credit Rating Requirements. One of the primary regulatory aspects for Formosa Bonds is the credit rating requirement. Issuers are typically required to have a credit rating of BBB or higher to issue Formosa Bonds. This requirement helps maintain a certain level of creditworthiness and reduces the risk for investors.

  2. Taiwanese Regulatory Authorities. Taiwan’s Financial Supervisory Commission (FSC) plays a pivotal role in regulating the Formosa Bond market. The FSC oversees the issuance, trading, and listing of Formosa Bonds to ensure compliance with regulatory standards.

  3. Listing Requirements. Formosa Bonds may be listed on the Taipei Exchange, which follows specific listing requirements and procedures. Issuers must meet these requirements to have their bonds listed on the exchange.

  4. Trading Platforms. The use of trading platforms like the GreTai Securities Market’s Electronic Bond Trading System is another regulatory aspect. This electronic system facilitates the trading of Formosa Bonds among securities firms and ensures transparency and efficiency.

  5. Overseas Listing and OTC Trading. When Formosa Bonds are listed on overseas exchanges, they are subject to the regulatory framework of those exchanges. Additionally, trading between dealers may occur in the over-the-counter (OTC) market, which may have its rules and regulations.

Economic Factors Impacting Formosa Bond Market

  1. Interest Rates. Fluctuations in interest rates, both in Taiwan and globally, significantly impact Formosa Bonds. Higher interest rates can reduce the attractiveness of fixed-income securities like bonds, potentially affecting bond prices.

  2. Currency Exchange Rates. Exchange rate movements, particularly between the Taiwan dollar (TWD) and other major currencies, can influence the returns on Formosa Bonds for foreign investors. Currency depreciation can erode returns for foreign investors.

  3. Economic Growth. Taiwan’s economic performance and GDP growth rate can influence investor sentiment in the Formosa Bond market. A strong and stable economy may attract more foreign investment.

  4. Inflation. Inflation erodes the purchasing power of bond returns. Higher inflation can lead to higher yields on bonds to compensate for the loss of purchasing power.

  5. Global Economic Conditions. The overall global economic environment, including economic crises or uncertainties, can impact investor appetite for Formosa Bonds. During periods of global instability, investors may seek safer assets, including bonds.

  6. Monetary Policy. Central bank policies, such as those of the Central Bank of Taiwan, can impact interest rates and bond yields. Changes in monetary policy can influence the attractiveness of bonds.

  7. Global Bond Market Conditions. The Formosa Bond market is interconnected with global bond markets. Changes in global bond market conditions, such as yield trends in major bond markets like the U.S. or Europe, can impact Formosa Bond yields.

  8. Market Liquidity. Liquidity in the Formosa Bond market, including the availability of buyers and sellers, can influence bond prices and yields.

  9. Trade Relations. Taiwan’s trade relations with other countries, especially major trading partners, can affect the overall economic outlook and investor sentiment.


  • Who issues Formosa bonds?

  • How can foreign issuers access the Taiwanese Formosa bond market?

  • Are Formosa bonds tradable on secondary markets?

  • What is the role of the currency swap market in Formosa bonds?

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