China Rate Swaps Fall as Exports Drop, PBOC Operations Add Funds

April 10 (Bloomberg) -- China’s interest-rate swaps fell to a two-week low as an unexpected drop in exports fueled expectations for stimulus and the central bank’s open-market operations added funds for the first time since January.

Shipments slid 6.6 percent from a year earlier in March, compared with the median estimate for a 4.8 percent increase in a Bloomberg survey of economists. Imports tumbled 11.3 percent, the most in 13 months. The People’s Bank of China sold 177 billion yuan ($28.5 billion) of repurchase contracts this week, while 232 billion yuan of the agreements were redeemed. The net addition of 55 billion yuan to the financial system follows eight weeks of withdrawals that removed 1.036 trillion yuan.

“The market was expecting a rebound in the trade data and the authorities are likely to put forward even more measures targeting certain areas of the economy,” said Frances Cheung, Hong Kong-based head of Asian rates strategy at Credit Agricole CIB. “The PBOC is also keeping liquidity fairly loose this week.”

The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repurchase rate, fell four basis points to 4.26 percent as of 5 p.m. in Shanghai, data compiled by Bloomberg show. The rate touched 4.24 percent earlier, the lowest since March 25.

The seven-day repo rate, a gauge of interbank funding availability, rose two basis points, or 0.02 percentage point, to 3.71 percent, according to a weighted average from the National Interbank Funding Center.

The monetary authority sold 70 billion yuan of 14-day repurchase agreements at a yield of 3.8 percent and 44 billion yuan of 28-day repos at 4 percent today, according to a trader at a primary dealer required to bid at the auctions. That followed sales totaling 63 billion yuan on April 8.

China will expand the range of companies eligible for preferential taxes and roll out more policies to stabilize economic growth, Premier Li Keqiang said at Boao Forum on Hainan island today. The government won’t resort to short-term stimulus and expansion this year may be lower or higher than the 7.5 percent target, he said.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

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