China Rate Swap Falls to Three-Week Low as PBOC Adds Cash

China’s one-year interest-rate swap fell to a three-week low after the central bank added funds to the financial system using reverse-repurchase operations.

The People’s Bank of China injected 15 billion yuan ($2.45 billion) today by issuing 14-day reverse repos at 4.1 percent, according to a trader required to bid at the auctions. The rate was 40 basis points lower than when the contracts were last auctioned a week ago. The monetary authority conducted seven-day reverse repos on Aug. 6 at a yield of 4 percent, down from 4.4 percent a week earlier when the contracts were used in open-market operations for the first time since January.

“The central bank again guided the rate lower, reaffirming its intention to the market,” said Guo Caomin, a bond analyst at Industrial Bank Co. in Shanghai. “However, the reverse-repo amount is not so big, so the downside for rates should be limited in the near term.”

The one-year swap contract, the fixed cost needed to receive the floating seven-day repo rate, fell two basis points to 3.85 percent as of 10:32 a.m. in Shanghai, data compiled by Bloomberg show. That is the lowest level since July 18.

The overnight repurchase rate, a gauge of cash availability in the banking system, gained four basis points, or 0.04 percentage point, to 3.16 percent, according to a weighted average compiled by the National Interbank Funding Center.

The central bank’s money-market operations injected a net 20 billion yuan this week, according to the trader. That compares with 136 billion yuan in the five days ended Aug. 2.

The yield on the government’s 3.38 percent notes due May 2023 climbed three basis points to a two-week high of 3.82 percent, according to prices from the Interbank Funding Center.

To contact Bloomberg News staff for this story: Helen Sun in Shanghai at hsun30@bloomberg.net

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

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