China’s benchmark interest-rate swaps rose by the most in two months amid speculation the central bank will refrain from loosening monetary policy even as slowdown signs mount in the world’s second-largest economy.
Growth in services output moderated in April, according to an official Purchasing Managers’ Index published today. Similar gauges released earlier this week indicated manufacturing is also losing traction. People’s Bank of China Governor Zhou Xiaochuan said April 20 that a slowdown was “normal” as policy makers sacrifice growth to make structural reforms.
The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, rose four basis points, or 0.04 percentage points, to 3.22 percent as of 11:06 a.m. in Shanghai, according to data compiled by Bloomberg. That’s the biggest increase since Feb. 28. The swap fell six basis points yesterday, the most since Jan. 18.
“Weak growth momentum has already been priced in and there’s a small retracement after a big move yesterday,” said Chen Qi, a Shanghai-based strategist at UBS Securities Co. The People’s Bank of China will “keep a neutral stance on liquidity despite a weak economy. I don’t think it will loosen monetary policy to boost growth.”
The PBOC sold 30 billion yuan ($4.9 billion) of 28-day repurchase agreements at a yield of 2.75 percent yesterday, draining funds from the financial system. 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, rose 28 basis points to 3.23 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.
The yield on the government’s 3.52 percent bonds due February 2023 increased one basis point to 3.41 percent, according to data from the Interbank Funding Center.
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