China Swap Touches Nine-Month Low on Bets Policy to Stay Loose

The cost of locking in China’s interest rates touched the lowest level since June on speculation the central bank will ensure an adequate cash supply to counter a slowdown in economic growth.

The one-year interest-rate swap, the fixed payment needed to receive the floating seven-day repurchase rate, rose two basis points to 3.80 percent as of 4:13 p.m. in Shanghai, data compiled by Bloomberg show. The rate touched 3.72 percent earlier, the lowest level since June 26, and has dropped 50 basis points, or 0.5 percentage point, in eight days.

Gross domestic product increased 7.4 percent in the first quarter, compared with 7.7 percent in the previous three months and the government’s full-year expansion target of 7.5 percent, official data show. A preliminary Purchasing Managers’ Index to be released April 23 may show manufacturing contracted this month, according to the median estimate in a Bloomberg survey.

“We expect the central bank to keep the monetary environment relatively loose to counter a slowdown,” Shenyin & Wanguo Securities Co. analysts led by Li Huiyong in Shanghai wrote in a research note today. “The economy is still under fairly big pressure.”

The seven-day repo rate, a gauge of interbank funding availability, fell 11 basis points to 2.70 percent, according to a weighted average from the National Interbank Funding Center. The rate dropped 93 basis points last week.

The People’s Bank of China asked banks to submit orders for 14- and 28-day repurchase agreements, seven- and 14-day reverse repos, and 91-day bills for this week as usual, according to a trader at a primary dealer required to bid at the auctions.

Forex Positions

Yuan positions at Chinese financial institutions accumulated from foreign-exchange purchases climbed 189.2 billion yuan ($30 billion) to 29.4 trillion yuan in March, central bank data show. That compares with an increase of 128.2 billion yuan in February.

The yield on government bonds due March 2024 declined one basis point to 4.35 percent, according to prices from the National Interbank Funding Center. Benchmark 10-year yields dropped 15 basis points to 4.30 percent last week, the most since December, ChinaBond data show.

— With assistance by Helen Sun

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