China One-Year Swap Rate Drops on Bets Foreign Inflows Will Rise

China’s one-year interest-rate swap dropped to the lowest level since December on speculation foreign capital inflows will increase as the world’s second- largest economy recovers.

Yuan positions accumulated from foreign-exchange purchases increased by 134.6 billion yuan ($21.7 billion) in December, the biggest in 11 months, data published by the central bank yesterday showed. The People’s Bank of China gauged demand for seven- and 14-day reverse-repurchase contract operations tomorrow, according to a trader required to bid at the auctions.

“The data are a confirmation of the market’s belief that capital is flowing into China,” said Pin Ru Tan, a Hong Kong- based rates strategist at HSBC Securities Asia Ltd. “Generally, the growth story is there and the yuan is no longer on a weak path like last year.”

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, fell one basis point to 3.33 percent as of 10:54 a.m. in Shanghai, according to data compiled by Bloomberg. It touched 3.32 percent, the lowest level since Dec. 28. A basis point is 0.01 percentage point.

The seven-day repurchase rate, which measures interbank funding availability, dropped one basis point to 2.80 percent, according to a weighted average rate compiled by the National Interbank Funding Center.

A government report due Jan. 18 will show China’s economy grew 7.8 percent in the fourth quarter, the fastest pace in nine months, according to the median estimate in a Bloomberg News survey of 53 economists.

The yuan has strengthened 0.2 percent this year after rising 1 percent in 2012.

The yield on the 2.95 percent government bond due August 2017 gained one basis point to 3.25 percent, according to the Interbank Funding Center.

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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