China Rate Swaps Advance on Faster Growth as Bond Sale Fails

China’s one-year interest-rate swaps climbed for a fifth day, the longest rising streak since January, amid signs economic growth is picking up.

Gross domestic product increased 7.5 percent from a year earlier in the second quarter, more than the 7.4 percent median estimate in a Bloomberg survey, data showed this week. The finance ministry sold 23.4 billion yuan ($3.8 billion) of two-year bonds today, less than the 26 billion yuan target. At least four companies announced yesterday they were scrapping fixed-income sales after a builder warned it may miss a debt payment due July 23, which would be China’s second onshore bond default.

“Adjustments to long-end rates amid improved economic fundamentals aren’t over yet, and short-end rates need to be repriced upward as funding conditions are rather tight,” Guotai Junan Securities Co. analysts led by Xu Hanfei wrote in a note. “Funding is being affected by tax payments.”

The cost of one-year swaps, the fixed payment needed to receive the floating seven-day repurchase rate, rose one basis point today and 33 basis points this week to 4.06 percent in Shanghai, according to data compiled by Bloomberg. It climbed as much as 22 basis points today, the biggest intra-day jump since a record cash crunch in June 2013.

The seven-day repo rate, a gauge of interbank funding availability, increased five basis points today to 3.76 percent, according to a weighted average compiled by the National Interbank Funding Center. The rate slipped one basis point, or 0.01 percentage point, this week.

Potential Default

The potential bond default by Huatong Road & Bridge Group Co. next week may have a short-term impact on money-market rates as banks may prepare for it by hoarding funds, Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd., said yesterday.

Geng Naizhuang, an official at the general office of Huatong Road, said the company is making all efforts to raise money to repay the debt, when reached by phone today. He said the underwriters and the local government are actively helping.

The government’s two-year bonds were sold today to yield 3.99 percent, according to a trader at a finance company that participates in such auctions.

The yield on the government’s 4 percent bonds due June 2024 was little changed at 4.45 percent, according to data from the National Interbank Funding Center. The rate rose 25 basis points this week.

The yield on five-year corporate debt rated AA- increased three basis points yesterday, the most since April, to 6.91 percent, a Chinabond index shows. Ratings of AA- or below are equivalent to non-investment grade globally, according to Haitong Securities Co., the nation’s second-biggest brokerage.

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