China Rate Swap Falls as PBOC Refrains From Rolling Bills Over

China’s interest-rate swaps fell as the central bank let three-year bills mature without rolling the funds into a new issue of the securities.

The People’s Bank of China did not issue a statement regarding a rollover as 40 billion yuan ($6.4 billion) of the securities matured yesterday. The payment of 1 billion yuan of notes that fell due on Nov. 26 marked the first time since the start of July that policy makers hadn’t transferred at least a portion of the funds due on maturing three-year bills into a new issue of the notes. Issuance totaled 422.2 billion yuan in the July-November period, while 571 billion yuan fell due.

“This is a significant change in terms of the PBOC’s attitude,” said Deng Haiqing, a Beijing-based fixed-income analyst at Citic Securities Co. “The central bank used the strategy last year to raise longer-term borrowing costs. This was one of the main reasons for elevated rates.”

The one-year interest-rate swap, which exchanges fixed payments for the floating seven-day repurchase rate, fell one basis point, or 0.01 percentage point, to 3.69 percent as of 4:20 p.m. in Shanghai, data compiled by Bloomberg show. It dropped as much as four basis points earlier.

The yield on government bonds due March 2024 rose six basis points to 4.20 percent. China’s 10-year yield reached 4.72 percent on Nov. 20, the highest in ChinaBond data going back to 2007.

Lower borrowing costs are needed to help combat an economic slowdown, the official China Securities Journal said today in a front-page commentary. Aggregate financing, the broadest measure of new credit, fell to 1.55 trillion yuan in April from 2.07 trillion yuan in March, the central bank reported yesterday.

Repos Sold

Industrial output rose 8.7 percent in April from a year earlier, compared with the 8.9 percent increase forecast in a Bloomberg survey, official data showed today. Fixed-asset investment gained 17.3 percent in the first four months of the year, another report showed.

The seven-day repo rate, a gauge of interbank funding availability, declined one basis point today to 3.18 percent, according to a fixing by the National Interbank Funding Center. The PBOC sold 97 billion yuan of 28-day repurchase agreements at a 4 percent yield in its money-market operations, according to a statement on its website. That compares with 93 billion yuan of contracts that matured, and marked the biggest issuance since April 22.

“A rollover of three-year notes would be a signal of tightening, so maybe the central bank didn’t want to deliver such a message to the market under the current circumstances,” said Chen Long, an analyst at Bank of Dongguan Co. in Guangdong province. “The PBOC instead increased the repo sales to partially offset the liquidity injection to stabilize the rates.”

— With assistance by Helen Sun

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