China Money Rate Rises Before Reverse Repos Mature; Swap Steady

China’s benchmark money-market rate climbed the most in two weeks before maturing reverse-repurchase agreements drain funds from the financial system.

The People’s Bank of China stepped up fund injections to ease a seasonal pickup in cash demand in the run-up to the week-long Lunar New Year holiday through yesterday. A total of 450 billion yuan ($74 billion) of 14- and 21-day reverse repos will fall due next week, according to data compiled by Bloomberg. Interest-rate swaps were little changed today after manufacturing and services reports added to signs of slowing growth in the world’s second-biggest economy.

The seven-day repurchase rate, a gauge of funding availability in the banking system, jumped 43 basis points, the most since Jan. 20, to 5.41 percent in Shanghai, according to a daily fixing by the National Interbank Funding Center. One-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repurchase rate, was down one basis point to 4.80 percent, after losing as much as four basis points earlier, based on data compiled by Bloomberg.

“The seven-day repo remains volatile as the liquidity situation is unclear,” said Frances Cheung, head of Asian rates at Credit Agricole CIB in Hong Kong. Still, interest-rate swaps “are more stable, suggesting that investors are not expecting the tightness to last,” she said.

Growth Slowdown

An official Purchasing Managers’ Index indicated manufacturing expanded in January at the slowest pace in six months, while a private report showed output may have contracted for the first time since August. Growth in services industries also weakened, according to separate PMIs. All the data were released in the past week.

Government bonds rose, with the yield on the 4.08 percent notes due in August 2023 falling five basis points to 4.5 percent, the lowest level since Jan. 27, according to prices from the National Interbank Funding Centre. A basis point is 0.01 percentage point.

“The market seems to be pricing in the weak Chinese data over the break,” said Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd. “PMI came in lower than expected. High interest rates and fiscal austerity are slowing growth momentum.”

President Xi Jinping has signaled his willingness to sacrifice short-term expansion to reduce the economy’s reliance on debt-fueled construction spending and tackle pollution.

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