Bloomberg News

China Swap Rate Rises as PBOC Refrains From Reserve-Ratio Cuts

August 13, 2012

China’s interest-rate swaps climbed by the most in one week on speculation the central bank will hold off from easing lenders’ reserve requirements as its uses open-market operations to add capital to the financial system.

The People’s Bank of China gauged demand today for seven-day reverse-repurchase contract auctions this week, according to a trader required to bid at the sales. The monetary authority has postponed lowering reserve ratios as reverse repos are ensuring an adequate supply of cash, according to a commentary published today by the Financial News, which is controlled by the central bank.

“The market is probably reacting to the news report that reserve repos are sufficient for now,” said Wee-Khoon Chong, a fixed-income strategist at Societe Generale SA in Hong Kong. “Expectations for a reserve-ratio cut have been damped.”

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, increased nine basis points to 2.77 percent as of 4:30 p.m. in Shanghai, according to data compiled by Bloomberg. That was the biggest increase since Aug. 6.

The central bank also asked lenders to submit orders for 28- and 91-day repurchase agreements, according to the trader.

The seven-day repurchase rate, which measures interbank funding availability, rose five basis points to 3.34 percent, a weighted average compiled by the Interbank Funding Center shows. The yield on the 3.51 percent government bonds due February 2022 rose two basis points, or 0.02 percentage point, to 3.30 percent, according to the Interbank Funding Center.

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

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

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.


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