China Swap Gains as PBOC Holds Reverse-Repo Rate Steady

China’s one-year interest-rate swap climbed for a fifth day, the longest run of gains in eight weeks, as the central bank refrained from lowering borrowing costs in money-market operations today.

The People’s Bank of China conducted 28 billion yuan ($4.6 billion) of 14-day reverse-repurchase agreements at 4.1 percent, according to a statement on its website. That matches the rate at the last auction on Aug. 8 and compares with 4.50 percent on Aug. 1, when the contracts were made available for the first time since February. Seven-day reverse repos were conducted at 3.9 percent on Aug. 13, down from 4 percent last week and 4.4 percent on July 30.

“Today’s reverse-repo rate didn’t go down further, so market rates will probably continue climbing in the next few days,” said Guo Caomin, an analyst at Industrial Bank Co. in Shanghai. “Frankly, the central bank’s recent moves have created some confusion regarding its true intentions. The market is waiting to see clearer signals.”

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, rose six basis points, or 0.06 percentage point, to 4.06 percent as of 4:16 p.m. in Shanghai, according to data compiled by Bloomberg. That’s the highest level since July 30.

The seven-day repo rate, a gauge of cash availability, climbed 13 basis points to a one-week high of 4.01 percent, according to a weighted average compiled by the National Interbank Funding Center. It has averaged 3.92 percent this year and touched a record 11.62 percent on June 20 at the height of a cash crunch that was engineered by the central bank to address risks in the banking system.

Net Injection

The central bank added a net 47.5 billion yuan into the financial system this week, according to data compiled by Bloomberg. That compares with 20 billion yuan last week.

The monetary authority auctioned 50 billion yuan of three-month deposits on behalf of the Ministry of Finance today at a rate of 4.69 percent, according to a statement on its website. That was more than 4.3 percent at the last sale on July 18.

The yield on the government’s 3.38 percent bonds due May 2023 dropped one basis point to 3.98 percent.

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