Bloomberg News

China Swaps Drop to 2-Month Low as PMI Indicates Slowing Economy

May 02, 2013

China’s benchmark interest-rate swaps fell to the lowest level in more than two month as manufacturing data indicated growth in the world’s second-largest economy is slowing further.

The final April reading of 50.4 for China’s Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics compares with 51.6 for March and a preliminary level of 50.5 on April 23. A figure above 50 indicates expansion. Local markets resumed trading today after a three-day holiday.

“The market is dominated by concerns about a slowdown in growth,” said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong. “The latest PMI number added to that concern, and rates are generally soft. In the near term, there seems to be no trigger for rates to go higher.”

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, declined seven basis points, or 0.07 percentage points, from April 26 to 3.19 percent in Shanghai, according to data compiled by Bloomberg. That’s the lowest level since Feb. 22.

China’s gross domestic product increased 7.7 percent in the first quarter, less than analysts’ forecasts and below the 7.9 percent pace in the final three months of 2012. Growth in industrial companies’ profits slowed in March, an April 27 report showed.

The People’s Bank of China sold 30 billion yuan ($4.9 billion) of 28-day repurchase agreements at a yield of 2.75 percent today, according to a central bank statement posted on the Chinese government bond clearing house’s website.

The seven-day repurchase rate, which measures interbank funding availability, fell 60 basis points from April 26 to 2.95 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.

The yield on 3.52 percent government bonds due February 2023 fell two basis points from April 26 to 3.41 percent, according to data from the Interbank Funding Center.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

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


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