China Swap Rate Rises to Two-Week High as IPOs Boost Fund Demand

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China’s one-year interest-rate swaps rose to a two-week high on speculation new share sales and tax payments will push up funding demand.

Twenty-three initial public offerings next week will lock up around 3.5 trillion yuan ($564 billion), exceeding the 2 trillion yuan frozen in the last few batches, SWS Research Co. estimates. Lenders also need to park companies’ tax funds at the central bank from April to early June. The People’s Bank of China refrained from conducting open-market operations on Tuesday, extending a five-week halt.

The cost of one-year swaps, the fixed payment to receive the floating seven-day repurchase rate, rose four basis points to 2.41 percent as of 5:03 p.m. in Shanghai, data compiled by Bloomberg show. That’s the highest level since May 12.

“With the huge IPOs coming, the bullish sentiment is being affected,” said Yan Yan, a Shanghai-based analyst at China Guangfa Bank Co. “Strong seasonal factors, such as tax payments in June, can’t be ignored, and are likely to lead to a temporary tightening of the market.”

The seven-day repo rate, a gauge of interbank funding availability, was little changed at 1.93 percent, according to a weighted average from the National Interbank Funding Center.

Hubei and Shandong provinces and Guangxi autonomous region will issue local-government debt over the last three days of this week. A fourfold jump in municipal sales this year is damping investor appetite for longer-term sovereign notes

The yield on the government bonds due April 2025 jumped seven basis points, or 0.07 percentage point, to 3.53 percent, the highest since April 17, data from the center show. The most-active contract for 10-year sovereign debt futures on the China Financial Futures Exchange closed 0.9 percent lower at 95.66. That was the biggest drop since the bourse started offering the instruments in March.

The premium investors demand to hold 10-year paper over one-year debt climbed to 118 basis points Monday, the widest gap since April 2014, according to ChinaBond data.

— With assistance by Helen Sun

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