China Interest-Rate Swap Declines on Speculation of PBOC Easing

China’s interest-rate swaps fell for the first time in three days on speculation the government will loosen monetary policy to support expansion in the world’s second-largest economy.

Curbs on property purchases should be fine-tuned, Li Daokui, an adviser to the People’s Bank of China, wrote in a commentary in the New Fortune magazine that was posted to the p5w.net website. The central bank this month cut the amount of cash that banks must set aside as reserves for the first time since 2008 as Europe’s debt crisis dimmed the outlook for exports and growth. The 50 basis-point decrease in reserve- requirement ratios took effect last week.

“An overnight comment by a PBOC advisor that curbs on the property market should be fine-tuned confirms our view that policy will be eased on all fronts to support growth, which would open more downside for rates,” said Dariusz Kowalczyk, a Hong Kong-based senior strategist at Credit Agricole CIB.

The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, fell six basis points, or 0.06 percentage point, to 2.87 percent as of 4:30 p.m. in Shanghai, according to data compiled by Bloomberg. It has dropped 88 basis points this quarter.

The seven-day repurchase rate, a gauge of funding availability in the financial system, declined 26 basis points to 3.23 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.

Exports rose 13.8 percent in November from a year earlier after increasing 15.9 percent in October, according to customs data released Dec. 10 in Beijing.

China’s finance ministry sold 28 billion yuan ($4.4 billion) of 10-year bonds at an average yield of 3.4509 percent, according to a trader at a finance company that participates in government debt auctions.

The average yield compared with the 3.47 percent median estimate in a Bloomberg News survey of seven fixed-income analysts and traders. The highest winning bid was 3.4825 percent, according to the trader.

The yield on the 3.99 percent government bond due June 2021 was unchanged at 3.50 percent, according to the Interbank Funding Center. A basis point is 0.01 percentage point.

--Judy Chen. Editors: James Regan, Ven Ram

To contact Bloomberg News staff for this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net;

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

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