China Swap Rate Falls as Debt Sold at Lower Yield Than Expected

China’s interest-rate swaps declined for a third day after the finance ministry sold five-year bonds at a lower-than-expected yield, spurring speculation a shortage of cash in the financial system is easing.

The Ministry of Finance sold the debt at a yield of 3.64 percent today, according to a statement posted on the website of Chinabond, the nation’s biggest debt clearing house. That was lower than the 3.7 percent median estimate in a Bloomberg survey of 15 finance companies. The seven-day repurchase rate, which measures lending costs between banks, declined for the first time since Nov. 16.

“The lower-than-expected bond yield eased worries about the cash shortage in December,” said Guo Caomin, a bond analyst at Industrial Bank Co. in Shanghai. “The yields climbed a lot last month, pricing in too much expectation about interest-rate and reserve-requirement ratio hikes.”

One-year swaps, the fixed rate needed to receive the floating seven-day repo rate, dropped five basis points to 3.13 percent as of 5:11 p.m. in Shanghai, from 3.18 percent yesterday, according to data compiled by Bloomberg. The swap rate gained 83 basis points last month, the biggest monthly increase since Bloomberg data started in 2006.

The finance ministry sold a total of 32.14 billion yuan of the five-year debt, compared with the 28 billion yuan originally planned, according to Chinabond’s statement. The benchmark seven-day repurchase rate fell 30 basis points to 3.3 percent, according to the Interbank Funding Center, reflecting an increase in the available liquidity.

Manufacturing Growth

The Purchasing Managers’ Index rose to 55.2 from 54.7 in October, China’s logistics federation said on its website today. That was more than the 54.8 median estimate of 14 economists surveyed by Bloomberg.

“The PMI was above expectations and has added to existing inflation concerns,” said Tim Condon, head of Asian research at ING Groep NV in Singapore. “It’s reinforcing that inflation is a top problem for China.”

The People’s Bank of China will sell one billion yuan of three-month bills tomorrow, according to a statement on its website today. That was the smallest amount since November 2007, according to data compiled by Bloomberg.

“The PBOC’s bill amount is small, reflecting a lack of demand on concern that there will be interest-rate hikes,” said Pin Ru Tan, a Singapore-based strategist at Royal Bank of Scotland Plc.

The central bank raised one-year lending and deposit rates in October for the first time since 2007 and has also lifted banks’ reserve requirements to reduce cash in the banking system.

To contact the reporter on this story: Judy Chen in Shanghai at xchen45@bloomberg.net; Sonja Cheung in Hong Kong at scheung58@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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