China Swap Rate Drops to Two-Week Low as Data Prompt Easing Bets

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China’s one-year interest-rate swaps fell to a two-week low as trade data hardened speculation the central bank will keep funding costs low to help the economy.

Overseas shipments fell for a third month in May while imports plunged more than forecast, official data showed Monday. Ample supply of funds in the banking system and the current environment of declining borrowing costs offer a good window to liberalize interest rates, according to a front-page commentary in the central bank-backed Financial News on Monday.

“The economy hasn’t yet bottomed out,” said Song Qiuhong, an analyst at Shunde Rural Commercial Bank Co. in Guangdong province’s Foshan city. “The central bank has the incentive to keep rates low.”

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, fell two basis points to 2.35 percent as of 5:05 p.m. in Shanghai, data compiled by Bloomberg show. That’s the lowest since May 25.

Consumer prices rose 1.3 percent last month, less than April’s 1.5 percent, according to a Bloomberg survey ahead of data Tuesday. Exports fell 2.8 percent from a year earlier in yuan terms, the customs administration said in Beijing on Monday. That compared with the median estimate for a 4 percent decline. Imports slid 18.1 percent, leaving a trade surplus of 366.8 billion yuan.

Government bonds climbed, with the yield on sovereign notes due 2025 declining two basis points to 3.56 percent, according to National Interbank Funding Center Prices.

The seven-day repurchase rate, a gauge of interbank funding availability, fell one basis point to 2.02 percent, after declining 15 basis points on June 5, according to a weighted average by National Interbank Funding Center.

Funds tied up last week for initial public offerings continued to return to the financial system. The 23 share sales were forecast to attract 4.9 trillion yuan ($790 billion) in bids, a Bloomberg survey showed.

— With assistance by Helen Sun

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