China Rate Swap Rises to Two-Week High as Inflation Gathers Pace

China’s five-year interest-rate swap climbed to a two-week high after government data showed February’s inflation was the fastest in 10 months.

China’s consumer prices climbed 3.2 percent from a year earlier, according to figures released March 9, exceeding January’s 2 percent gain and the median estimate for a 3 percent increase in a Bloomberg survey of analysts. The government set an annual inflation target of 3.5 percent at an annual congress meeting that started in Beijing on March 5.

“The higher-than-expected CPI headline number is boosting traders’ inflation expectations,” said Liu Junyu, a bond analyst in Shenzhen at China Merchants Bank Co., the nation’s sixth-biggest lender.

The five-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, climbed two basis points to 3.71 percent as of 10:33 a.m. in Shanghai, the highest since Feb. 25, according to data compiled by Bloomberg. It averaged 3.28 percent in the past 12 months.

The seven-day repurchase rate, which measures interbank funding availability, jumped 51 basis points to 3 percent, according to a weighted average rate compiled by the National Interbank Funding Center. It dropped 195 basis points, or 1.95 percentage points, last week.

The People’s Bank of China gauged demand for seven and 14- day reverse-repurchase contract operations this week, according to a trader required to bid at the auctions. The central bank also asked banks to submit orders for 28-day repos.

--Judy Chen. Editors: James Regan, Simon Harvey

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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