China Swaps in Longest Losing Streak Since 2006 as Lending Falls

China’s one-year interest-rate swaps fell for an eighth day, the longest losing streak since 2006, as a report on lending added to speculation policy makers will cut banks’ reserve-requirement ratios.

Combined net lending by Industrial & Commercial Bank of China, China Construction Bank Corp., Bank of China and Agricultural Bank of China Ltd. was almost zero in the two weeks through May 13, Shanghai Securities News reported today, citing an unidentified person familiar with the matter. China’s central bank and commercial lenders sold 60.6 billion yuan ($9.6 billion) more foreign currency than they bought in April, the first net sell-off this year, according to People’s Bank of China data. That indicated capital may have flowed out of the world’s second-biggest economy.

“There might be one more cut in reserve requirements before the end of the second quarter given slowing growth momentum and slow foreign-exchange inflows,” said Chen Qi, co-head of fixed-income research at UBS Securities Co. in Shanghai. Depressed lending “is consistent with weak demand in the real economy,” she said.

The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, fell six basis points, or 0.06 percentage point, to 2.78 percent as of 4:44 p.m. in Shanghai, according to data compiled by Bloomberg. The eight-day decline was the longest losing streak since May 2006.

Repo Rate Falls

The People’s Bank of China cut banks’ reserve requirements by 50 basis points on May 12, on day after data showed April industrial production, new loans and retail sales grew less than forecast. The monetary authority hasn’t gauged demand for bill sales tomorrow, according to a trader at a primary dealer required to bid at the auctions. The central bank asked banks to submit orders for 91-day repurchase agreements, the trader said.

The seven-day repurchase rate, a gauge of funding availability in the financial system, decreased four basis points to 2.79 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The yield on the 3.51 percent government bonds due February 2022 slid five basis points to 3.36 percent.

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