Bloomberg News

China 1-Year Swap Rate Headed for Weekly Drop on Slowdown Signs

November 27, 2011

Nov. 25 (Bloomberg) -- China’s one-year interest-rate swaps headed for a weekly decline on speculation the central bank will ease monetary policy to support a slowing economy.

The People’s Bank of China added a net 22 billion yuan ($3.5 billion) of funds to the financial system this week, after withdrawing 2 billion yuan last week, according to data compiled by Bloomberg. China’s manufacturing may contract this month by the most in almost three years, a preliminary purchasing managers’ index showed this week.

“The very weak flash PMI is making people concerned about a faster than expected slowdown,” said Wee-Khoon Chong, a Hong Kong-based fixed-income strategist at Societe Generale SA. Swap rates dropped because of “continuation of uncertainty in Europe, expectation of lower seven-day repo fixings and anticipation of PBOC easing policy.”

The one-year swap rate, the fixed cost to receive the floating seven-day repurchase rate, declined two basis points to 2.98 percent as of 10:50 a.m. in Shanghai, according to data compiled by Bloomberg. It dropped 13 basis points, or 0.13 percentage point, this week.

The central bank will auction 60 billion yuan of six-month treasury deposits at commercial banks on behalf of the Ministry of Finance on Nov. 29, according to a statement on the central bank’s website yesterday.

That may help ease a cash shortage next week when only 2 billion yuan of bill and repurchase agreements will mature, down from 53 billion yuan this week, said Guo Caomin, a bond analyst at Industrial Bank Co. in Shanghai.

Repurchase Rate

The seven-day repurchase rate, which measures interbank funding availability, dropped 11 basis points to 4.03 percent, decreasing for a third day, according to a weighted average rate compiled by the National Interbank Funding Center.

The yield on the 3.48 percent government bond due July 2012 was unchanged at 3.50 percent, according to the Interbank Funding Center.

Shenzhen city government sold 1.1 billion yuan of three- year bonds today at a yield of 3.03 percent, according to a trader at a finance company that participates in the auction. It also issued 1.1 billion yuan of five-year debt at 3.25 percent, the trader said.

--Judy Chen. Editors: Anil Varma, James Regan

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

%CNY

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.


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