China 5-Year Swaps Climb a Third Day on PBOC Stance, U.S. Jobs

China’s five-year interest-rate swaps rose for a third day on speculation central bank Governor Zhou Xiaochuan will favor higher money-market rates to remedy excessive lending.

The seven-day repurchase rate, which measures interbank funding availability, may average 4 percent in the third quarter, compared with 3.63 percent in the past year, according to the median estimate in a Bloomberg survey of eight analysts. Asian swap rates advanced today after U.S. data last week showed employment increased more than forecast in June, bolstering the case for the Federal Reserve to cut stimulus.

“There would be no across the board, huge liquidity injection, at least in the near term,” said Frances Cheung, a Credit Agricole CIB strategist in Hong Kong. “In addition, Asian rates are mostly up after the U.S. data.”

The five-year interest-rate swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, climbed one basis points to 3.81 percent in Shanghai, according to data compiled by Bloomberg. Similar-maturity swaps in the Philippines jumped 11 basis points, while South Korean contracts added six basis points.

The seven-day repurchase rate, which measures interbank funding availability, dropped 14 basis points to 3.67 percent after falling 236 basis points, or 2.36 percentage points, last week, according to a weighted average compiled by the National Interbank Funding Center. The benchmark reached a record high of 12.45 percent on June 20.

Credit Growth

China’s money-market cash squeeze will reduce credit growth this year by 750 billion yuan ($122 billion), according to the median estimate of 15 analysts in a Bloomberg survey.

The People’s Bank of China signaled June 25 that any liquidity support during the funding crunch would be focused on banks that lend to help the economy. It hasn’t issued 91-day bills since June 20 or 28-day repurchase contracts since June 6.

The monetary authority gauged demand for seven- and 14-day reverse-repurchase contracts, according to a trader at a primary dealer required to bid at the auctions. The central bank also asked banks to submit orders for 28-day repurchase contracts this morning, the trader said.

The PBOC may release detailed measures for interest-rate liberalization reform this year, according to a front-page commentary in China Securities Journal written by reporter Zhang Zhaohui. Exports in June may be “relatively weak” and might even decline from a year earlier, the newspaper reported, citing an unidentified person.

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