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China Interest-Rate Swaps Drop to 11-Month Low on Stimulus Bets

China’s interest-rate swaps fell to an 11-month low on speculation monetary policy will be loosened to combat a slowdown in the world’s second-largest economy.

Policies will be fine-tuned when needed to solve issues such as any shortage of funds for the real economy, Premier Li Keqiang was cited as saying in a statement on the central government’s website on May 23. New home prices rose in April in the fewest cities in a year and a manufacturing gauge stayed below 50, the dividing line between expansion and contraction, for a fifth month in May, data showed last week.

“The anticipation of easing and the ongoing risk of a larger deterioration in property market should continue to keep Chinese rates low,” said Wee-Khoon Chong, Singapore-based head of rates strategy for Asia ex-Japan at Nomura Holdings Inc. “Expectations are rising on the back of Premier Li’s comments.”

The cost of one-year swaps, the fixed payment needed to receive the floating seven-day repurchase rate, fell 10 basis points, or 0.1 percentage point, to 3.52 percent as of 4:25 p.m. in Shanghai, data compiled by Bloomberg show. The rate earlier slid to 3.51 percent, the lowest level since June 7.

People’s Bank of China Governor Zhou Xiaochuan said the central bank and its local branches must implement prudent monetary policy and create a good monetary and financial environment to support local economic development, according to a statement on its website. He made the comments during a May 25-26 visit to a central bank branch in Zhejiang province’s Jiaxing city.

Repo Auction

The monetary authority offered 20 billion yuan ($3.2 billion) of 28-day repurchase agreements at a yield of 4 percent today, according to a trader at a primary dealer required to bid at the auctions. That compares with 50 billion yuan of the contracts that matured.

The seven-day repo rate, a gauge of funding availability, increased one basis point to 3.21 percent, according to a weighted average from the National Interbank Funding Center. That followed a drop yesterday of 18 basis points.

Ten-year government bond yields dropped one basis point to 4.19 percent, data from the National Interbank Funding Center shows.

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