China Swaps Drop to Four-Month Low as Slowdown Spurs Easing Bets

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China’s one-year interest-rate swaps fell to a four-month low on speculation the nation’s economic slowdown will prompt further monetary easing.

Gross domestic product rose 7 percent from a year earlier in the quarter ended March, the statistics bureau said in Beijing Wednesday. That’s the weakest pace since 2009 and matches the median estimate in a Bloomberg survey. China should use open-market operations to guide interest rates lower, and there’s room for further reserve-requirement ratio cuts, the China Securities Journal said in a commentary Wednesday.

The cost of one-year swaps, the fixed payment to receive the floating seven-day repurchase rate, declined six basis points to 3 percent as of 4:33 p.m. in Shanghai, according to data compiled by Bloomberg. It fell to 2.99 percent earlier, the lowest level since Dec. 3.

“The economy isn’t yet out of the woods,” said Wang Qiangsong, an analyst at Bank of Nanjing Co. in the city. “So the expectation for further easing through reserve ratios, interest rates, or targeted measures, will persist.”

Data for the month of March showed industrial production was weaker than all 40 estimates in a Bloomberg survey. China has already relaxed home-purchasing rules, lowered interest rates twice and reduced the reserves banks must set aside in recent months.

The People’s Bank of China cut borrowing costs for reverse-repurchase operations on Tuesday, selling 10 billion yuan ($1.6 billion) of the seven-day contracts that add funds to the system at 3.35 percent. That was 10 basis points less than the two auctions last week, and the fifth time the PBOC reduced the rate since the beginning of March.

Repo Rate

The seven-day repo rate, a gauge of interbank liquidity, fell as low as 2.78 percent, the least since May 2014, before closing little changed at 2.89 percent, according to a weighted average compiled by the National Interbank Funding Center.

The yield on the government bonds due December 2024 slipped six basis points, or 0.06 percentage point, to 3.59 percent, prices from the National Interbank Funding Center show.

The interest rate for overnight loans on the Shanghai Stock Exchange surged from Tuesday’s 0.16 percent to close at 2.45 percent amid concern subscriptions for initial public offerings will lock up funds. Investors may place 2.73 trillion yuan of orders for 30 Chinese IPOs this week, a Bloomberg survey of six brokerages showed.

— With assistance by Helen Sun

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