China Swaps Set for Biggest Monthly Drop Since ’08 on Slowdown
China’s one-year interest-rate swaps are poised for their biggest monthly decline since 2008 on concern that a deepening European crisis will weaken an expansion in the world’s second-largest economy.
Premier Wen Jiabao said growth faces increasing downward pressure, the Hunan Daily reported yesterday, citing his speech in the southern Chinese province on May 25. Policy easing, including faster project approvals and central bank guidance for borrowing, may amount to additional credit of as much as 600 billion yuan ($94 billion), Deutsche Bank AG wrote in note yesterday.
“The yuan interest-rate swaps are lower on the back of the heightened European crisis and also uncertainty over China’s growth,” said Wee-Khoon Chong, a strategist at Societe Generale SA in Hong Kong. “Overall market sentiment is very fragile and it will need significant positive news to turn it around.”
The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, slid 10 basis points to 2.465 percent at 9:31 a.m. in Shanghai, according to data compiled by Bloomberg. The rate fell 79 basis points this month, the most since November 2008.
Exports increased 4.9 percent in April from a year earlier, the slowest pace in three months, while imports rose 0.3 percent, the customs bureau said on May 10. Industrial output increased 9.3 percent, the smallest gain since May 2009, a government report showed the following day. New-home prices in the eastern city of Wenzhou fell 12 percent, while prices in Beijing and Shanghai dropped 1 percent, according to official figures.
The People’s Bank of China will sell 30 billion yuan of 91- day repurchase agreements today, according to traders at primary dealers required to bid at the auctions. The monetary authority withdrew 78 billion yuan using open-market operations last week and 64 billion yuan in the five days ended May 18, following this month’s cut of lenders’ reserve requirements.
The seven-day repurchase rate, a gauge of funding availability in the financial system, decreased 24 basis points, or 0.24 percentage point, to 2.10 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The rate slumped 167 basis points this month and touched 2 percent on May 24, the lowest level since April, 2011.
The yield on 3.51 percent government bonds due February 2022 declined four basis points today and 20 basis points this month to 3.34 percent.
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