China Swaps Drop on Bets PBOC to Help Meet Year-End Cash Demand

China’s interest-rate swaps fell for a second day on speculation the central bank will add enough funds to the financial system via reverse-repurchase operations to meet year-end cash demand.

The People’s Bank of China injected a net 11 billion yuan ($1.8 billion) into the financial system last week. The monetary authority gauged demand for a sale of seven- and 14-day reverse- repo contracts tomorrow, according to a trader at a primary dealer required to bid at the auctions.

“In the near term, money-market rates will still be determined by the PBOC’s reverse repos, and banks will probably keep sufficient funding for the year-end,” said Weisheng He, a Shanghai-based strategist at Citigroup Inc. “I don’t expect much volatility in the money market around year-end.”

The one-year interest-rate swap, the fixed cost to receive the seven-day repo rate, fell two basis points, 0.02 percentage point, to 3.34 percent as of 9:59 a.m. in Shanghai, according to data compiled by Bloomberg.

China’s upcoming central economic work conference will leave policies unchanged, China Business News reported today, citing an unidentified person. The meeting, at which officials may set the 2013 growth goal, could be held this month, China Business News reported Nov. 26.

The seven-day repurchase rate, a gauge of interbank funding availability, was little changed at 3.02 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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