China Swap Rate Advances Most Since March as IPOs Lock Up Funds

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China’s one-year interest-rate swaps climbed by the most in more than two months as a slew of initial public offerings fueled demand for funds.

New share sales by 25 companies scheduled for this week will lock up 6.7 trillion yuan ($1.1 trillion), according to the median estimate in a Bloomberg survey. The Ministry of Finance last week confirmed it has granted an additional 1 trillion yuan in quotas to swap high-cost local-government borrowings into cheaper municipal bonds, taking the program’s total to 2 trillion yuan. Money rates were also driven higher as lenders parked company tax payments with the central bank.

“A large amount of funds is likely to be frozen by the massive IPO subscriptions,” said Sun Binbin, a Shanghai-based analyst at China Merchants Securities Co. “Besides, banks will also have to prepare for the tax payments. We could see more upward pressure on rates.”

The cost of one-year swaps, the fixed payment to receive the floating seven-day repurchase rate, advanced 10 basis points to a one-month high of 2.52 percent as of 4:34 p.m. in Shanghai, data compiled by Bloomberg show. That’s the biggest increase since March 26.

The seven-day repo rate, a gauge of interbank funding availability, rose for a fifth day, climbing seven basis points to 2.15 percent, the highest level since June 4, a weighted average from National Interbank Funding Center shows.

China’s regional governments will sell more than 200 billion yuan of bonds this week, compared with 134 billion yuan in May, draining bank funds, analysts led by Chen Kang at SWS Research Co. wrote in a note Monday. Companies have delayed or canceled at least 18.6 billion yuan of bond issuances in the past two weeks, according to data compiled by Bloomberg.

The yield on sovereign bonds due 2025 climbed six basis points to 3.67 percent, according to National Interbank Funding Center prices. That’s the biggest increase in two weeks.

— With assistance by Fion Li, and Helen Sun

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