Bloomberg News

China Swaps Poised for Record Weekly Drop as Cash Crunch Eases

June 27, 2013

China’s one-year interest-rate swaps are set for their biggest weekly drop on record while the benchmark money-market rate fell the most since 2011 as signs of selective easing alleviated a cash shortage.

The People’s Bank of China will use various tools to adjust policies and maintain market stability, Governor Zhou Xiaochuan said at a forum in Shanghai today. Agricultural Development Bank of China said yesterday it provided 615.7 billion yuan ($100 billion) in liquidity support to its bond underwriting syndicate members since late May.

“The swap and interbank markets are stabilizing for now,” said Frances Cheung, a Credit Agricole CIB strategist in Hong Kong. “Still, swaps should settle at levels higher than pre-crunch ones. Investors’ mindsets have changed, and they are not taking an ample-liquidity situation for granted.”

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, fell 48 basis points this week, the most in data going back to 2006, to 3.96 percent at 11:16 a.m. in Shanghai, data compiled by Bloomberg show. It reached an all-time high of 5.06 percent on June 20 and rose 65 basis points this month.

The seven-day repurchase rate fell 59 basis points today to 6.15 percent, taking this week’s slide to 310 basis points, the most since February 2011, according to a weighted average compiled by the National Interbank Funding Center. It reached a record 12.45 percent on June 20 and rose 134 basis points this month. The overnight repo rate declined 376 basis points since June 21 and 50 basis points today to 4.94 percent.

Interbank Market

In the past two days, about 30 transactions for overnight loans in the interbank market were recorded in the final 90 minutes of trade in Shanghai at rates between 3.5 percent and 4 percent, according to data compiled by Bloomberg. These were the lowest levels of each day and down from the average 5.46 percent. Maturing notes added a net 25 billion yuan to the financial system this week, the least in a month, the data show.

The PBOC “will use all kinds of tools to appropriately adjust liquidity in the market and maintain the overall stability of the market,” Zhou said at the forum today. The nation will continue to implement a prudent monetary policy and allow more foreign participation in the interbank money, foreign-exchange and bond markets, he said.

The nation must take steps to ensure it can meet its 7.5 percent economic growth target this year, the China Securities Journal cited a Chinese Academy of Social Sciences report as saying.

The finance ministry sold three-year local-government bonds at a yield of 3.79 percent today, according to a statement posted on its website. A total of 24.2 billion yuan of bonds will be offered on behalf of the provinces of Hubei, Hainan, Sichuan and the city of Chongqing, the ministry said on June 25.

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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