China Swaps Reach 5-Month Low as Reserve-Ratio Cut Takes Effect

China’s one-year interest-rate swap dropped to a five-month low on speculation the central bank will ensure there’s ample cash supply in the financial system to support lending and economic growth.

The 12-month swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, declined for a ninth day before the latest reserve-ratio cut for lenders takes effect tomorrow. The Shanghai Securities News reported that net lending at China’s four-biggest banks was almost zero during the first two weeks of this month.

“China’s growth outlook doesn’t look good,” said Guo Caomin, a bond analyst at Industrial Bank Co. in Shanghai. “The market expects the central bank will continue to take measures to ensure loose liquidity.”

The swap contract fell three basis points, or 0.03 percentage point, to 2.77 percent as of 4:30 p.m. in Shanghai, according to data compiled by Bloomberg. It earlier touched 2.67 percent, the lowest level since Dec. 7.

The seven-day repurchase rate, which measures interbank funding availability, dropped 11 basis points to 2.69 percent, according to a weighted average compiled by the National Interbank Funding Center.

China’s central bank drained 64 billion yuan ($10.1 billion) from the financial system this week, compared with an injection of 41 billion yuan last week, according to data compiled by Bloomberg. The reserve-ratio cut will add more than 400 billion yuan to the market, according to Industrial Bank’s Guo.

The monetary authority issued 30 billion yuan of 91-day repurchase contracts today, according to a statement on the central bank’s website.

The yield on the 3.51 percent government bonds due February 2022 rose five basis points to 3.41 percent, according to the Interbank Funding Center.

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