China Swap Rate Climbs Most in a Week on New Shares, Muni Sales

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China’s one-year interest-rate swaps rose the most in more than a week on speculation stock and municipal bond sales will drive up funding costs.

Twenty initial public offerings from May 19 to May 21 will lock up 2.8 trillion yuan ($451 billion) of funds, according to a Bloomberg survey of six brokerages. Local authorities start selling debt this week, the first of 1.8 trillion yuan of muni issuance in 2015. Jiangsu province sold 52.2 billion yuan of notes on Monday and Xinjiang autonomous region will offer 5.9 billion yuan of securities on May 21.

The cost of one-year swaps, the fixed payment to receive the floating seven-day repurchase rate, climbed seven basis points, the most since May 6, to 2.27 percent as of 4:43 p.m. in Shanghai, data compiled by Bloomberg show. It touched a four-year low of 2.15 percent on Friday. The 14-day relative strength index for the rate dropped to 18.7 on May 14, the lowest in almost three years and an indication to some traders the contracts are set to increase.

“The extremely loose interbank liquidity might be behind us,” said Deng Haiqing, an analyst at Citic Securities Co. in Beijing. “There should be little downside for money rates.”

The seven-day repo rate, a gauge of funding availability in the banking system, rose one basis point to 1.89 percent after falling for 12 consecutive days, according to a weighted average by the National Interbank Funding Center. The rate will average 2 percent to 2.5 percent this quarter, according to 60 percent of respondents in a Bloomberg survey.

A similar contract on the Shanghai Stock Exchange jumped 168 basis points, or 1.68 percentage points, to 2.09 percent.

Jiangsu Sale

Jiangsu sold all four tenors of debt that it offered at two basis points higher than the lower ends of reference ranges set by the regulators. The three-year notes were sold to yield 2.94 percent, the five-year securities 3.12 percent, and seven- and 10-year paper 3.41 percent, according to statements on the China Central Depository & Clearing Co. website. The yields were lower than the median estimates in a Bloomberg survey of 11 traders and analysts.

Local governments should use some of the proceeds from the bond sales to repay higher-cost debt from existing creditors, and such private placements need to be completed by Aug. 31, according to a May 15 statement from the Ministry of Finance.

The yield on the sovereign securities due April 2025 rose four basis points to 3.43 percent, according to National Interbank Funding Center prices.

— With assistance by Helen Sun

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