China’s Swaps Trade Near One-Month Low as Economic Growth Slows

China’s one-year interest-rate swaps traded near a one-month low after data showed economic growth unexpectedly slowed in the first quarter.

Gross domestic product increased 7.7 percent from a year earlier, down from 7.9 percent in the previous three months, the government reported today. That compares with the 8 percent median estimate in a Bloomberg News survey of 41 economists. Factory output also cooled, with industrial production rising 8.9 percent in March from 9.9 percent in the first two months.

“The weak data outcome, together with the previously reported soft inflation, reduce the odds for policy rate tightening, at least in the near term, which may help the interest-rate curve re-steepen,” said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong.

The one-year swap, the fixed cost needed to receive the floating seven-day repurchase rate, fell one basis point to 3.25 percent as of 10:35 a.m. in Shanghai, according to data compiled by Bloomberg. It touched 3.24 percent earlier, the lowest level since March 12. The extra cost to lock in interest rates for five years rather than two shrank to 26 basis points after touching 50 basis points on Feb. 4, according to data compiled by Bloomberg.

Inflation eased to 2.1 percent last month from 3.2 percent in February, while the trade balance slipped into deficit for the first time since February 2012, official data showed last week.

The People’s Bank of China gauged demand today for an auction of seven- and 14-day reverse-repurchase agreements that add funds to the financial system, according to a trader at a primary dealer required to participate in such operations. It also asked banks to submit orders for 28-day repurchase contracts, the trader said.

The seven-day repo rate, which measures interbank funding availability, climbed four basis points to 3 percent, 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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