China Rate Swaps Climb as Bets on Reserve-Ratio Cuts Reined In

China’s interest-rate swaps rose for the first time in four days on speculation a pickup in lending will deter policy makers from easing banks’ reserve requirements.

Banks extended 1.01 trillion yuan ($160 billion) of new loans in March, the most in a year, the People’s Bank of China said on April 12. That exceeded all 28 estimates in a Bloomberg News survey of economists. The central bank last reduced the proportion of cash that lenders must set aside in February, lowering the reserve-requirement ratio for major lenders by half a percentage point to 20.5 percent.

“Investors are not betting on aggressive easing, so front- end rates are a bit sticky,” said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong. “Given the rise in March loans, investors have reduced bets on a reserve-requirement cut this month,” she said.

The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, increased three basis points, or 0.03 percentage point, to 3.24 percent in Shanghai, according to data compiled by Bloomberg. It reached a one-month high of 3.29 percent on April 13.

The seven-day repo rate, a gauge of funding availability in the financial system, was steady at 3.76 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.

The People’s Bank of China didn’t gauge demand for bill sales today, suggesting there will be no auction tomorrow, according to a trader at a primary dealer required to bid at the auctions. The central bank asked banks to submit orders for 91- day repurchase agreements, the trader said. Bill sales were suspended in December to free up cash for lending and support the economy as Europe’s debt crisis hurts exports.

Bonds Fall

The government sold at least 30 billion yuan of 10-year bonds today at an average yield of 3.499 percent, according to a trader at a finance company that participates in government debt auctions. That was lower than the median estimate of 3.515 percent in a Bloomberg News survey of 10 finance companies.

The yield on 3.44 percent government bonds due June, 2016 rose three basis points to 3.14 percent, according to the National Interbank Funding Center.

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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