China Swap Rate Completes Biggest Weekly Gain Since June on PBOC

China’s interest-rate swaps had their biggest weekly increase since June as the central bank drained funds for the third time in four weeks.

The People’s Bank of China refrained from selling 14-day reverse-repurchase contracts that are used to add funds yesterday, after auctioning 8 billion yuan ($1.3 billion) of seven-day repo agreements on Nov 5. That resulted in a net withdrawal of 5 billion yuan this week, after an injection of 29.1 billion yuan in the five days ended Nov. 1, according to data compiled by Bloomberg.

The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repo rate, rose 21 basis points this week to 4.35 percent as of 5:08 p.m. in Shanghai, according to data compiled by Bloomberg. That was the largest weekly advance since the period ended June 21. The rate was unchanged today.

“The central bank indeed started to tighten, as is evidenced by the suspension of reverse-repo sales yesterday,” said Gao Hui, an analyst at Founder Securities Co. in Beijing. “And this time, it may not resume soon as we don’t expect any factors in November that will repeat the crunch at the end of October.”

The PBOC said it will keep a prudent monetary policy and continue stabilizing inflation expectations as the foundation for stable consumer prices isn’t solid, according to a report posted on the central bank’s website on Nov. 5.

The yield on the 4.08 percent government bonds due August 2023 rose 16 basis points this week to 4.33 percent, according to data from the Interbank Funding Center. That was the highest for a benchmark 10-year sovereign note since 2008. The yield climbed one basis point today.

Trade Data

China’s exports gained 5.6 percent last month from a year earlier, more than the median estimate of 1.7 percent growth in a Bloomberg News survey, official data showed today. Imports rose 7.6 percent, also exceeding the estimate. Industrial output may have increased 9.6 percent in October from a year earlier and consumer prices rose 3.3 percent, according to the median estimates in Bloomberg surveys before official reports due tomorrow.

The seven-day repo rate fell 65 basis points this week to 3.95 percent, according to a weighted average compiled by the National Interbank Funding Center. The rate advanced five basis points today.

— With assistance by Helen Sun

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