Bloomberg News

China Swap Rate Rises for Second Day After PBOC Drains Capital

December 07, 2011

Dec. 7 (Bloomberg) -- China’s interest-rate swaps climbed for a second day after the People’s Bank of China drained cash from the financial system, damping speculation of further monetary easing.

The central bank withdrew 100 billion yuan ($15.7 billion) yesterday via sales of one-year bills and 28-day repurchase contracts, according to Liu Junyu, a bond analyst at China Merchants Bank Co. in Shenzhen. A total of 35 billion yuan ($5.5 billion) of bills and repurchase contracts will mature in the rest of this week, he said. The PBOC lowered the reserve- requirement ratio for banks by 50 basis points last week, the first reduction since 2008.

“The capital withdrawal shows the central bank may want to maintain the status quo of the current monetary policy,” said Liu. “It doesn’t want the capital system to be flush with capital after injecting more than 300 billion yuan through the reserve-ratio cut.”

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, rose three basis points to 2.76 percent as of 5:01 p.m. in Shanghai, according to data compiled by Bloomberg.

The seven-day repurchase rate, which measures interbank funding availability, gained seven basis points to 3.44 percent, according to a weighted average rate compiled by the National Interbank Funding Center.

The yield on the 3.44 percent government bond due June 2016 fell four basis points, or 0.04 percentage point, to 3.06 percent, according to the Interbank Funding Center.

China’s finance ministry sold at least 28 billion yuan of three-year bonds at an average yield of 2.82 percent, according to a trader at a finance company that participates in government debt auctions. The average yield compared with the 2.85 percent median estimate in a Bloomberg News survey of eight fixed-income analysts and traders.

-- Judy Chen, Fion Li. Editors: Andrew Janes, James Regan

To contact Bloomberg News staff for this story: Fion Li in Hong Kong at fli59@bloomberg.net or Judy Chen in Shanghai at xchen45@bloomberg.net.

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


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