China Swap Rate Falls to One-Month Low as PBOC Drains Less Cash

China’s one-year interest rate swaps fell to the lowest level in a month after the central bank withdrew less cash from the financial system last week.

The People’s Bank of China drained a net 1.1 billion yuan ($180 million) in the week ended Sept. 13, compared with 37 billion yuan in the previous period. It asked lenders to submit orders for seven-day reverse-repurchase agreements, 28-day repurchase contracts and 91-day bills today, according to a trader at a primary dealer required to bid at the auctions.

“The PBOC will probably continue to maintain a neutral to tight policy,” Li Zhiping and Liu Feng, analysts at Sinolink Securities Co., wrote in a report yesterday.

The cost of one-year swaps, the fixed payment to receive the floating seven-day repo rate, fell seven basis point, or 0.07 percentage point, to 4.01 percent as of 4:43 p.m. in Shanghai. That’s the lowest since Aug. 15.

The seven-day repo rate, a gauge of funding availability in the banking system, declined nine basis points to 3.50 percent, a weighted average compiled by the National Interbank Funding Center showed.

The yield on the government’s 4.08 percent bonds due August 2023 fell two basis points to 4.12 percent, according to prices from the Interbank Funding Center.

China’s outstanding local government debt is between 15 trillion and 18 trillion yuan now, the Shanghai Securities News reported today, citing Yan Yan, executive vice president at China Chengxin Credit Management Co.

— With assistance by Helen Sun

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