China Rate Swaps Rise as Money Supply Report Tempers Easing Bets

China’s one-year interest-rate swaps climbed the most in a week on speculation faster money-supply gains will limit room for policy easing to support the economy.

M2, the broadest gauge of money supply, rose 13.4 percent in May from a year earlier, as new local-currency loans climbed to 870.8 billion yuan ($140 billion), according to data published by the People’s Bank of China today. That exceeded median estimates of 13.1 percent and 750 billion yuan, respectively, in Bloomberg surveys. Total social financing was 1.4 trillion yuan last month, matching analysts’ forecast.

“Faster money-supply growth will make it more difficult for the PBOC to ease monetary policy in a decisive way,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. “New social financing slowed quite sharply, to a level that makes it challenging to stimulate growth in a conclusive way.”

The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repurchase rate, climbed four basis points, or 0.04 percentage point, to 3.52 percent as of 4:23 p.m. in Shanghai, according to data compiled by Bloomberg. That’s the biggest increase since June 5.

The seven-day repo rate, a gauge of interbank funding availability, rose one basis point to 3.16 percent, a weighted average from the National Interbank Funding Center shows.

Fund Injection

The central bank issued 40 billion yuan of 28-day repurchase agreements that drain funds at 4 percent today, according to a statement on its website. That was outweighed by maturing repo contracts, resulting in net additions of 104 billion yuan this week, compared with 73 billion yuan in the previous period, according to data compiled by Bloomberg.

“Money-market rates will probably remain low with the help of the PBOC’s operations,” said Chen Long, a bond analyst at Bank of Dongguan Co. in Guangdong province. “Quarter-end cash demand will have some impact on interbank liquidity, but we’re still optimistic.”

Premier Li Keqiang said the government will cut taxes for some companies, spend more to develop the Yangtze River region, and boost investment in railways, highways, and waterways, according to a statement posted on the central government’s website yesterday. The PBOC said in a separate statement that it will expand financing channels for companies, and encourage policy lenders to support exporters.

The yield on the 4.42 percent government bonds due March 2024 was unchanged at 4.1 percent, according to prices from the National Interbank Funding Center.

— With assistance by Helen Sun

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