China Swap Rate Declines to Two-Month Low on Loosening Bets

China’s one-year interest-rate swaps dropped to the lowest level since June on speculation the central bank will loosen monetary policy to boost growth.

Foreign-direct investment fell 14 percent year-on-year in August, compared with the median estimate in a Bloomberg survey for a 0.8 percent gain, according to figures released today. That followed data over the weekend showing industrial output rose 6.9 percent last month, the least since 2008, and fixed-asset investment and retail sales missed estimates. Credit Agricole CIB said the odds of a reserves-ratio cut this year have risen and Barclays Plc said interest-rate reductions are inevitable, according to research notes yesterday.

The cost of one-year swaps, the fixed payment to receive the floating seven-day repurchase rate, declined three basis points, or 0.03 percentage point, to 3.55 percent as of 4:31 p.m. in Shanghai, data compiled by Bloomberg show. It fell to 3.53 percent earlier, the lowest since June 26.

“We see the window for a required reserves-ratio cut open now, and targeted interest-rate cuts are also possible,” said Deng Haiqing, the Beijing-based head of fixed-income research at Citic Securities Co. “The central bank will consider loosening to alleviate banks’ concerns in lending.”

The People’s Bank of China auctioned 15 billion yuan ($2.4 billion) of 14-day repurchase agreements at 3.7 percent today, according to a statement on its website. That compares with 18 billion yuan of the contracts maturing today, which will inject funds into the banking system.

More IPOs

The seven-day repo rate, a gauge of funding availability in the interbank market, climbed five basis points to 3.33 percent, the highest since Sept. 3, according to a weighted average compiled by the National Interbank Funding Center.

“As there will be more initial public offerings next week, which will lock up funds, and as the end of the third quarter is approaching, money rates will probably start to increase soon,” said Li Haitao, a Shanghai-based analyst at China Guangfa Bank Co. “It’s likely the PBOC will cut interest rates.”

The yield on the 4 percent government bonds due June 2024 climbed one basis point to 4.28 percent, data from the National Interbank Funding Center showed.

— With assistance by Helen Sun

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