China Rate Swaps Climb as Services PMI Advance Signals Recovery

China’s interest-rate swaps rose on signs growth in Asia’s largest economy is recovering.

The services Purchasing Managers’ Index for the nation climbed to 53.1 in June, the highest since March 2013, while the composite PMI rose to 52.4 from 50.2 in May, data released by HSBC Holdings Plc and Markit Economics showed today. The official non-manufacturing PMI was 55.0 in June, above the dividing line between expansion and contraction at 50. China is likely to maintain a growth rate of about 7.5 percent this year, Bank of Communications Co. said in a report.

The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repurchase rate, climbed three basis points, or 0.03 percentage point, to 3.74 percent as of 4:02 p.m. in Shanghai, according to data compiled by Bloomberg. It touched 3.78 percent on July 1, the highest since May 20.

“As growth recovers, liquidity in the second half won’t be as loose as in the first,” said Huang Hai, Beijing-based deputy head of the research department at SDIC CGOG Futures Co., a unit of State Development & Investment Corp. “Its natural for interest rates to climb a bit in coming months.”

The People’s Bank of China sold 10 billion yuan ($1.6 billion) of 28-day repurchase agreements today at 4 percent, according to a statement on the website. That takes the net injection over four days to 55 billion yuan, the eighth consecutive week of addition.

The seven-day repo rate, a gauge of interbank funding availability, slid 50 basis points to 3.42 percent, according to a weighted average from the National Interbank Funding Center. It fell 54 basis points yesterday, after banks met cash requirements to meet reserves payments due July 7.

The yield on the government’s 4 percent bonds due June 2024 was unchanged at 4.20 percent, according to data from the National Interbank Funding Center.

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

To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Amit Prakash, Anil Varma

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