Bloomberg News

China’s One-Year Swap Declines After Wen Pledges Fine-Tuning

February 13, 2012

Feb. 13 (Bloomberg) -- China’s interest-rate swaps dropped for a second day after Premier Wen Jiabao said the country should start “fine-tuning” economic policies this quarter, fueling speculation the central bank will ease monetary policy.

The one-year swap retreated from a three-month high reached on Feb. 9 after Wen said economic conditions in January deserved attention, according to a Xinhua News Agency report yesterday. “We have to make a proper judgment as early as possible when things happen and take quick action,” Wen told the state-run agency. In December, the People’s Bank of China lowered the amount lenders must set aside as reserves by 50 basis points to 21 percent.

“Interest-rate swaps went lower on the back of Wen’s comments,” said Wee-Khoon Chong, a fixed-income strategist at Societe Generale SA in Hong Kong. “There’ll be speculation of a reserve-ratio cut soon.”

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, dropped one basis point to 3.25 percent as of 10:43 a.m. in Shanghai, according to data compiled by Bloomberg. The rate declined seven basis points, or 0.07 percentage point, on Feb. 10.

The seven-day repurchase rate, which measures interbank funding availability, rose two basis points to 3.65 percent, according to a weighted average rate compiled by the National Interbank Funding Center.

The yield on the 3.99 percent government bond due June 2021 fell eight basis points to 3.50 percent, according to quotes provided by the Interbank Funding Center.

-- Editors: Andrew Janes, Simon Harvey

To contact Bloomberg News staff for this story: Andrea Wong in Taipei at awong268@bloomberg.net

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


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