China Five-Year Swap at Seven-Month High on Signs of Recovery

China’s five-year interest-rate swap rose to a seven-month high after a report indicated manufacturing may expand in November for the first time in 13 months, adding to signs the economy is rebounding.

The preliminary reading was 50.4 for a purchasing managers’ index released today by HSBC Holdings Plc (HSBA) and Markit Economics. That compares with a final level of 49.5 for October. Fifty is the dividing line between expansion and contraction. The People’s Bank of China offered 46 billion yuan ($7.4 billion) of seven-day reverse-repurchase contracts and 43 billion yuan of 14-day agreements, according to a statement on its website.

“The rise in the swap reflects strengthening confidence about growth,” said Liu Junyu, a bond analyst in Shenzhen at China Merchants Bank Co., the nation’s sixth-biggest lender. “The economy is rebounding in the fourth quarter.”

The five-year interest-rate swap, the fixed cost to receive the seven-day repo rate, jumped five basis points to 3.55 percent as of 10:57 a.m. in Shanghai, according to data compiled by Bloomberg. That’s the highest level since April 25.

The monetary authority sold 50 billion yuan of six-month treasury deposits at commercial banks on behalf of the Ministry of Finance at a yield of 4.8 percent, according to a trader required to bid at the sales.

The seven-day repurchase rate, a gauge of interbank funding availability, climbed one basis point to 3.21 percent, according to a weighted average compiled by the National Interbank Funding Center. The yield on the 3.39 percent government bonds due August 2022 rose one basis point, or 0.01 percentage point, to 3.53 percent, according to data from the Interbank Funding Center.

--Judy Chen. With assistance from Kyoungwha Kim in Singapore. Editors: Andrew Janes, Amit Prakash

To contact the reporter on this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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