China Swaps Drop as Manufacturing Gauges Increase Stimulus Bets

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China’s interest-rate swaps fell for the first time in four days as signs of slowing manufacturing fueled speculation the authorities will take more steps to stimulate the economy.

A factory index for July released Monday by Caixin and Markit Economics came in at 47.8, less than the median forecast of 48.3 in a Bloomberg survey. That followed a reading of 50 for the official Purchasing Managers’ Index on Saturday, compared with analysts’ projections for 50.1. Numbers above 50 indicate expansion. China’s economy grew 7 percent in each of the first two quarters, the least since early 2009.

The cost of one-year swaps, the fixed payment to receive the floating seven-day repurchase rate, declined two basis points to 2.52 percent as of 4:23 p.m. in Shanghai, data compiled by Bloomberg show. The contracts climbed 17 basis points in July, the biggest increase this year.

“The weaker-than-expected PMIs may raise concerns that the improvement in the real economy may not be solid, and that pro-growth measures are still needed,” said Song Qiuhong, an analyst at Shunde Rural Commercial Bank Co. in Foshan, a city in Guangdong province. “Money rates have already fully priced in the economic slowdown.”

The seven-day repurchase rate, a gauge of interbank funding availability, was steady at 2.44 percent, a weighted average from the National Interbank Funding Center shows. The overnight repo rate climbed for the 23rd day in a row, rising two basis points to 1.48 percent, the highest since May 6.

China will step up targeted measures to support the economy and counter downward pressure, the official Xinhua News Agency reported on July 30, citing a politburo meeting.

The yield on the sovereign notes due April 2025 rose one basis point to 3.51 percent, after jumping five basis points on Friday in the biggest increase in three weeks, according to National Interbank Funding Center prices.

— With assistance by Helen Sun

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