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China Swap Rate Rises Most in 11 Months as PBOC Avoids Ratio Cut

Aug. 20 (Bloomberg) -- China’s one-year interest-rate swap rate rose most in 11 months on signs the central bank won’t lower lenders’ reserve requirements as property prices rebound.

The People’s Bank of China gauged demand today for 14-day reverse-repurchase contracts, according to a trader required to bid at the sales. The resumption of 14-day reverse-repo operations last week suggests the monetary authority has no intention of cutting reserve ratios in the short term, according to a commentary published on Aug. 18 in the Financial News, a newspaper controlled by the PBOC.

“The move is likely driven by the hawkish press report,” said Wee-Khoon Chong, a fixed-income strategist at Societe Generale SA in Hong Kong.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, jumped 16 basis points to 3.07 percent as of 5:02 p.m. in Shanghai, the biggest increase since September, according to data compiled by Bloomberg.

China’s new-home prices climbed from a month earlier in 49 of the 70 cities tracked by the government, the National Bureau of Statistics said on its website on Aug. 18. That was the most since May last year and compared with 25 cities in June.

The central bank also asked banks to submit orders for seven-day reverse repurchase agreements and 28- and 91-day repurchase contracts, according to the trader. The monetary authority has held off from lowering reserve ratios since May.

The seven-day repurchase rate, which measures interbank funding availability, dropped 27 basis points to 3.62 percent, according to a weighted average rate compiled by the National Interbank Funding Center. The seven-day repo may reach 4.5 percent in the coming days because of month-end cash demand and waning capital inflows, Chong said.

The yield on the 3.51 percent government bonds due February 2022 climbed four basis points, or 0.04 percentage point, to 3.36 percent, according to the Interbank Funding Center.

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

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

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