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China Interest-Rate Swaps Drop as 1-Year Bills Yield Unchanged at Auction
China’s interest-rate swaps dropped after the central bank kept the yield on one-year bills unchanged for an 11th consecutive week, signaling policy makers are reluctant to tighten monetary policy.
The People’s Bank of China sold 24 billion yuan ($3.5 billion) of the securities at an auction today at a yield of 2.0929 percent. The monetary authority added a net 41 billion yuan of capital into the financial system last week, following four weeks of withdrawals. The yuan was little changed.
“The market speculates the authorities will fine-tune monetary policy to support growth,” said Guo Caomin, a fixed- income analyst at Industrial Bank Co. in Shanghai. “It’s a policy-watching period.”
Two-year interest-rate swaps, the fixed rate needed to receive the floating seven-day repurchase rate, fell three basis points to 2.19 percent as of 5:46 p.m. in Shanghai, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.
The seven-day repo rate rose one basis point to 1.75 percent, according to a daily fixing rate by the National Interbank Funding Center.
China’s industrial output expanded 13.4 percent from a year earlier in July, the smallest gain in 11 months, and bank lending increased by the least since March, government reports showed this month.
Bonds Stable
A sale by the domestic arm of China Investment Corp., the nation’s sovereign wealth fund, showed demand was still strong for Chinese debt. Central Huijin Investment Co. sold at least 40 billion yuan ($5.9 billion) of seven- and 20-year bonds. The seven-year debt drew bids 3.47 times the offering amount of 20 billion yuan, and the 20-year securities attracted bids 2.7 times the offering amount of 20 billion yuan, according to traders at two finance companies involved in the auction.
“The demand was strong for new bonds,” said Chen Jianbo, a Beijing-based fixed-income analyst at BOC International (China) Ltd., the investment banking arm of Bank of China Ltd. The bond market hasn’t had any direction recently, he said.
Government bonds were little changed. The yield on the 2.3 percent note due in August 2013 was 2.32 percent, and the price of the security was 99.94 per 100 yuan face amount, according to the National Interbank Funding Center.
Twelve-month non-deliverable forwards dropped 0.07 percent to 6.6891 per dollar, reflecting bets the currency will strengthen 1.6 percent from the spot rate of 6.7972, according to data compiled by Bloomberg.
Editors: Ven Ram, Andrew Janes
To contact Bloomberg News staff for this story: Judy Chen in Shanghai at +86-21-6104-7047 or xchen45@bloomberg.net. Belinda Cao in Beijing at +86-10-6649-7570 or lcao4@bloomberg.net
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