China Rate Swaps Near 10-Month Low as Manufacturing Stays Weak

China’s interest-rate swaps traded near the lowest level since June after a report signaled the nation’s manufacturing contracted for a fourth month and the central bank eased reserve requirements for some rural banks.

A preliminary Purchasing Managers’ Index was 48.3 in April, according to HSBC Holdings Plc and Markit Economics data released today. Fifty marks the dividing line between expansion and contraction. The People’s Bank of China said yesterday it will lower reserve-requirement ratios at county-level rural commercial banks and cooperatives from April 25. The move will release an estimated 60 billion yuan ($9.6 billion) into the banking system, said Ding Shuang, an economist at Citigroup Inc.

The one-year interest-rate swap, the fixed payment needed to receive the floating seven-day repurchase rate, fell two basis points, or 0.02 percentage point, to 3.76 percent as of 4:30 p.m. in Shanghai, data compiled by Bloomberg show. It reached 3.72 percent on April 21, the lowest since June 26.

“Weak demand for funding has kept the money rates low, and the central bank’s tolerance indicates its intention to support growth,” said Chen Peng, an analyst at Fortune Securities Co. in Shenzhen. “It may take some time for recent mini-stimulus policies to take effect, and growth should be able to rebound later in the second quarter.”

The seven-day repo rate, a gauge of interbank funding availability, rose four basis points to 3.11 percent, according to a weighted average by the National Interbank Funding Center. The rate gained 36 basis points yesterday, the biggest increase in two weeks.

Demand Gauging

The central bank asked lenders to submit orders for 14- and 28-day repo agreements, 14-day reverse repos and 91-day bills for tomorrow, according to a trader at a primary dealer required to bid at the auctions. The PBOC sold 100 billion yuan of 28-day repos yesterday at 4 percent, while 93 billion yuan of 14- and 28-day agreements matured.

The yield on government bonds due March 2024 fell one basis point to 4.39 percent, after rising five basis points yesterday, according to prices from the National Interbank Funding Center.

The Ministry of Finance sold 29 billion yuan of five-year sovereign debt at 4.04 percent today, according to a statement posted on the website of China Central Depository & Clearing Co. That compared with the median estimate of 4.03 percent in a Bloomberg News survey.

— With assistance by Helen Sun

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