PBOC Suspends Bill Sales as Rate Swap Climbs Most in 10 Months

China’s central bank refrained from draining funds from the financial system for the first time in three months as a cash squeeze pushed interest-rate swaps up by the most since August.

The People’s Bank of China hasn’t offered repurchase contracts or bills today, according to two traders required to bid at the auctions. Two calls by Bloomberg News to the PBOC’s media office went unanswered. The monetary authority conducted repo operations every week since February and resumed sales of bills in May for the first time since December 2011.

The overnight repo rate, which measures interbank funding availability, touched 9.78 percent on June 8, according to a weighted average compiled by the National Interbank Funding Center. That is the highest level in data going back to May 2006. The rate climbed 62 basis points to 6.94 percent as of 4:30 p.m. in Shanghai today, while the seven-day repo rate rose 42 basis points to 6.39 percent. Local markets were shut the last three days for the Dragon Boat Festival holiday.

“If the PBOC sold repos or bills today, the market would have collapsed,” said Liu Junyu, a bond analyst at China Merchants Bank Co., the nation’s sixth-biggest lender. “The cash shortage hasn’t eased and banks are still busy borrowing money.”

The one-year swap contract, the fixed cost needed to receive the floating seven-day repo rate, jumped 11 basis points to 3.65 percent, according to data compiled by Bloomberg. That is the biggest gain since Aug. 20. One basis point is 0.01 percentage point.

Stocks Slide

China Merchants Bank Co. led shares of Chinese banks lower in Shanghai after the central bank skipped the open-market operation. The lender’s shares fell as much as 5.7 percent to 11.82 yuan before paring some of its losses to end the day down 1.8 percent. China Construction Bank Corp. slipped 1.5 percent while Bank of China Ltd. declined 2.2 percent.

Open-market operations, which are usually conducted every Tuesday and Thursday, were last suspended on March 5. The halt is probably temporary, Liu said. The central bank hasn’t offered any reverse-repurchase contracts in open-market operations to inject capital since February.

The yield on the 2.62 percent government bond due April 2014 climbed one basis point to 3.17 percent, according to the Interbank Funding Center.

— With assistance by Judy Chen

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