China Swaps Drop as Worsening Economic Data Boosts Easing Chance

China’s one-year interest-rate swaps fell for a second day as export growth missed estimates, adding to speculation policy makers will take measures to spur the economy.

Overseas sales increased 1 percent from a year earlier, compared with an 11.3 percent gain in June, official data showed today. The growth also trailed the median forecast of 8 percent in a Bloomberg survey. Imports rose 4.7 percent, following an advance of 6.3 percent in June. Government reports yesterday showed inflation slowed for a fourth month in July and factory production climbed by less than analysts estimated.

“Interest-rate swaps continued to correct lower gradually, as the latest set of economic data add to the odds for further monetary easing,” said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong. “The lack of easing at the moment is keeping the curve inverted at the very front end.”

The one-year interest-rate swap, the fixed cost to receive the seven-day repurchase rate, decreased nine basis points to 2.68 percent as of 5:08 p.m. in Shanghai, data compiled by Bloomberg show. The rate increased two basis points this week.

The People’s Bank of China added 44 billion yuan ($6.9 billion) into the financial system in the week through Aug. 9, following a withdrawal of 86 billion yuan the previous week, according to data compiled by Bloomberg.

Caution on Inflation

China will be more cautious about adjusting monetary policy as inflation may pick up again, according to a commentary on the front-page of the China Securities Journal today. The economy may face a larger money supply, rebounding home prices and declining interest rates, leaving less room for fine-tuning, according to the newspaper.

The seven-day repurchase rate, which measures interbank funding availability, increased one basis point today to 3.30 percent, according to a weighted average compiled by the National Interbank Funding Center. The rate fell 10 basis points, or 0.1 percentage point, this week.

The yield on the 3.14 percent bonds due February 2017 fell one basis point to 2.83 percent, according to the National Interbank Funding Center. The yield climbed six basis points this week.

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