China Five-Year Swaps Climb to Two-Week High as Economy Improves

China’s five-year interest-rate swaps climbed to the highest level in more than two weeks after a pickup in services output added to signs growth is gathering pace in the world’s second-largest economy.

The non-manufacturing Purchasing Managers’ Index was 56.2 in January, the highest since August, according to data released yesterday by the National Bureau of Statistics and China Federation of Logistics & Purchasing. A reading above 50 indicates expansion. The People’s Bank of China gauged demand for sales of 14-day reverse-repurchase contracts this week, according to a trader at a primary dealer required to bid at the auctions.

“There was better data on the economy, which brightens the outlook and bolsters risk appetite,” said Chen Qi, a Shanghai-based strategist at UBS Securities Co. “The PBOC will make sure they will provide enough liquidity ahead of the week-long Lunar New Year holiday” that begins Feb 11, she said.

The five-year interest-rate swap, the fixed cost to receive the seven-day repurchase rate, climbed two basis points to 3.80 percent in Shanghai, according to data compiled by Bloomberg. The rate touched 3.83 percent, the highest since Jan. 16.

The central bank’s tendency to use short-term money-market operations to control borrowing costs means changes in lenders’ reserve-requirement ratios can be less frequent, according to a front-page commentary in today’s Financial News by Xu Shaofeng, who wasn’t identified. Ratios were last cut in May, which was the third reduction in six months.

The seven-day repurchase rate, a gauge of interbank funding availability, rose 14 basis points, or 0.14 percentage point, to 3.47 percent, according to a weighted average compiled by the National Interbank Funding Center. That was the sixth gain in a row, the longest run of increases since October.

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