China Swaps Touch Two-Week High on Record PBOC Fund Withdrawals

China’s one-year interest-rate swaps touched a two-week high on speculation the central bank will tighten monetary policy to temper gains in home prices.

Premier Wen Jiabao called on local authorities to “decisively” curb real estate speculation and take steps to rein in the property market after data showed prices surged the most in two years last month. The People’s Bank of China drained 910 billion yuan ($146 billion) from the financial system this week, the biggest withdrawal since Bloomberg started compiling the data in 2008.

“It shows determination of the central bank to tighten liquidity conditions as they need to guard against nascent inflation and asset-price gains, especially in real estate,” said Dariusz Kowalczyk, a Credit Agricole CIB strategist in Hong Kong.

The one-year swap, the fixed cost needed to receive the floating seven-day repurchase rate, climbed two basis points to 3.16 percent as of 5 p.m. in Shanghai, the highest level since Feb. 7, according to data compiled by Bloomberg.

The PBOC issued 10 billion yuan each of 28- and 91-day repurchase agreements today, contracts that are used to drain funds, according to a statement on its website. The monetary authority withdrew cash this week for the first time since June by resuming repo operations.

The seven-day repo rate, which measures interbank funding availability, gained five basis points to 3 percent, according to a weighted average compiled by the National Interbank Funding Center. The overnight rate rose 16 basis points, the biggest since Feb. 6.

The yield on the 3.39 percent government bonds due August 2022 declined one basis point, or 0.01 percentage point, to 3.55 percent, according to the Interbank Funding Center. Yesterday, it slid three basis points, the most since Dec. 25, after the finance ministry sold similar-maturity debt at a lower rate than the median forecast in a Bloomberg survey of six finance companies.

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