China’s Rate Swaps Near 17-Month Low on Outlook for PBOC Policy

China’s one-year interest-rate swaps traded near a 17-month low amid speculation the central bank will keep borrow costs at levels supportive of the economy.

The People’s Bank of China said it will use monetary tools flexibly, keep appropriate cash supply and achieve reasonable growth in credit and social financing, according to an Oct. 5 statement released after a quarterly policy meeting. A composite Purchasing Managers’ Index fell to 52.3 last month from 52.8 in August, data from HSBC Holdings Plc and Markit Economics showed.

The cost of one-year swaps, the fixed payment to receive the floating seven-day repurchase rate, was at 3.23 percent as of 4:45 p.m. in Shanghai compared with 3.21 percent on Sept. 30. It fell to 3.20 percent earlier, the lowest since May 2013, data compiled by Bloomberg show. China’s financial markets were shut Oct. 1-7 for the National Day holidays.

“There’s no doubt that lowering financing costs to support the economy is still at the top of the agenda for policy makers,” said Wang Ming, Shanghai-based marketing director at Shanghai Yaozhi Asset Management LLP. “Money rates will probably remain low for the rest of this year.”

The central bank eased mortgage restrictions for people intending to buy a second home, and lifted a ban on purchasing a third one, according to a statement posted on the PBOC’s website after markets closed on Sept. 30.

Repo Rate

The seven-day repo rate, a gauge of interbank funding availability, rose eight basis points, or 0.08 percentage point, to 2.99 percent, according to a weighted average compiled by the National Interbank Funding Center. The yield on the 4 percent government bonds due June 2024 gained one basis point to 4.02 percent, data from the center showed.

The State Council announced a package of measures, ranging from dealing with existing local government debt to new issuance, after law makers passed an amendment to the Budget Law about a month ago. In guidelines posted on the government’s website on Oct. 2, China’s cabinet said regional authorities must abide by their borrowing quotas and the central administration won’t bail them out.

— With assistance by Helen Sun

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