China Repo Rate Snaps 3-Day Drop as U.S. Data Improves Outlook

Oct. 17 (Bloomberg) -- China’s money-market rate rose, snapping a three-day decline, as an improvement in the U.S. economy brightened the outlook for regional and global growth.

A government report today may show U.S. housing starts increased to a four-year high after data yesterday that saw factory output beat analysts’ estimates and home-builder confidence climb to the highest in six years. The People’s Bank of China gauged demand for a sale of seven- and 14-day reverse-repurchase contracts due tomorrow, according to a trader at a primary dealer required to bid at the auctions.

“The upmove is due to the general risk-on sentiment,” said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong. “There’s nothing special regarding liquidity, which remains easier than before the holiday,” she said, referring to the week-long break at the start of October.

The seven-day repurchase rate, a gauge of interbank funding availability, climbed seven basis points to 2.87 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. It touched 2.70 percent yesterday and on Oct. 12, the lowest since Sept. 4.

The PBOC added 76 billion yuan ($12 billion) to the banking system yesterday using reverse-repurchase contracts. It sold 18 billion yuan of seven-day reverse repos at 3.35 percent, unchanged from the last auction on Oct. 11, according to a central bank statement published on its website. The monetary authority also conducted 58 billion yuan of 28-day reverse repos at 3.60 percent, the same as the rate on Oct. 9.

Interest-Rate Swaps

The one-year interest-rate swap, the fixed cost to receive the seven-day repo rate, climbed four basis points to 3.13 percent in Shanghai, according to data compiled by Bloomberg. The yield on the 2.95 percent government bonds due August 2017 rose one basis point, or 0.01 percentage point, to 3.20 percent, Chinabond data show.

The finance ministry sold at least 26 billion yuan of one-year bonds at an average yield of 2.94 percent today, according to a trader at a finance company that participates in government debt auctions. The average yield compared with the 2.75 percent median estimate in a Bloomberg News survey of 4 fixed-income analysts and traders.

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