China Five-Year Swaps Rise in Week on Economic Recovery Optimism

China’s five-year interest-rate swaps climbed this week on optimism the world’s second-biggest economy is recovering from a seven-quarter slowdown.

China’s manufacturing may expand at a faster pace this month, according to a purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics. The report follows Dec. 9 government data showing industrial production rose 10.1 percent in November and retail sales grew 14.9 percent, the biggest increases since March. The central bank drained a net 125 billion yuan ($20 billion) of capital from the financial system this week, according to data compiled by Bloomberg.

“The market was already optimistic about a growth recovery in coming months, and the PMI release today affirms that view,” said Wee-Khoon Chong, a strategist at Societe Generale SA in Hong Kong. “The view will likely continue to exert upside pressure on interest-rate swaps.”

The five-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, rose seven basis points, or 0.07 percentage point, this week to 3.65 percent in Shanghai, according to data compiled by Bloomberg. It gained five basis points today.

The seven-day repurchase rate, which measures interbank funding availability, dropped four basis points this week to 3 percent, according to a weighted average rate compiled by the National Interbank Funding Center. It rose 32 basis points today.

The December preliminary PMI reading was 50.9, according to HSBC and Markit Economics. That compares with the 50.8 median estimate in a Bloomberg survey of 12 economists and a final reading of 50.5 for November, the first time in 13 months it was above the expansion-contraction dividing line of 50.

The yield on the 2.94 percent government bond due October 2013 dropped four basis points this week o 2.85 percent, according to the Interbank Funding Center. It fell three basis points today.

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net

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

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