China Rate Swaps Rise to Three-Week High as Economy Stabilizes

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China’s interest-rate swaps rose to a three-week high as signs of an end to the economic downturn weakened the case for further monetary easing.

Gross domestic product expanded 7 percent in the three months through June from a year earlier, official data showed Wednesday, unchanged from the first quarter and beating economists’ estimates of 6.8 percent. Industrial production and fixed-asset investments also came in better than forecast, adding to signs of resilience in the economy after a report on Tuesday showed credit growth accelerated in June.

One-year interest-rate swaps, the cost to receive the floating seven-day repurchase rate, climbed seven basis points to 2.55 percent as of 4:30 p.m. in Shanghai, according to data compiled by Bloomberg. It touched 2.62 percent earlier, the highest since June 24.

“The data show economic expansion is stabilizing for the time being,” said Lin Yijian, an analyst at Guangzhou Rural Commercial Bank Co. in Guangdong province. “It’s now less necessary to cut interest rates further.”

Industrial output rose 6.8 percent last month, up from 6.1 percent in May, data from the statistics bureau showed. Aggregate finance, which includes loans and off-balance-sheet credit, was 1.86 trillion yuan ($300 billion) last month, higher than all 23 forecasts in a Bloomberg survey.

The second-quarter GDP shows “the worst moment is behind us,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. “We will continue to see the economy rebounding in the second half of the year as the property market improves.”

Market Opening

The yield on government bonds due April 2025 was little changed at 3.56 percent, National Interbank Funding Center prices show. The Ministry of Finance auctioned 30 billion yuan of 10-year bonds at 3.51 percent Wednesday, according to a statement on the China Central Depository & Clearing Co. website.

The PBOC removed barriers for foreign monetary authorities, sovereign wealth funds and international financial organizations to invest in domestic bonds, saying they can trade on the interbank market after filling in a one-page registration form, according to a statement on its website Tuesday. Previously these institutions needed to seek approval, and investments were constrained by the quotas allotted.

The Finance Ministry is considering granting another 1 trillion yuan of quota to local governments to swap high-cost debt maturing this year into bonds, according to people familiar with the matter. This will add to 2.8 trillion yuan of total issuance of municipal bonds this year.

The seven-day repo rate, a gauge of cash availability in the banking system, fell seven basis points to 2.42 percent, according to a weighted average from the National Interbank Funding Center.

— With assistance by Helen Sun

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