China Rate Swaps Trade Near Two-Week High as Easing Bets Recede

China’s one-year interest-rate swaps traded near a two-week high on speculation the central bank will refrain from broad-based policy loosening amid signs of improvement in the world’s second-largest economy.

System-wide monetary easing isn’t an option for the nation now, according to a commentary on the Financial News website backed by the central bank today. While growth has slowed, it is still of quality, and the government will prevent mounting debt from affecting economic restructuring, it said. Factory output in September and a preliminary manufacturing gauge for October exceeded analysts’ expectations, data showed last week.

The cost of one-year swaps, the fixed payment to receive the floating seven-day repurchase rate, was little changed at 3.12 percent as of 4:08 p.m. in Shanghai, data compiled by Bloomberg show. The rate reached 3.17 percent on Oct. 24, the highest since Oct. 14. It sank to a two-year low of 2.96 percent last week after the central bank on Oct. 14 lowered the rate it pays lenders on 14-day repurchase agreements to 3.4 percent from 3.5 percent, the second reduction in a month.

The rate on 14-day repos will be cut by 10 basis points at least one more time this year by the People’s Bank of China, Tim Condon, head of research at ING Groep NV in Singapore, forecast in a note today. The monetary authority hasn’t adjusted its benchmark one-year deposit rate or the reserve-requirement ratio for major lenders for more than two years.

Money Market

The PBOC maintained a neutral position in the money market, without injecting or draining funds, for a second week in the five days ended Oct. 24, data compiled by Bloomberg show.

The seven-day repo rate, a gauge of interbank funding availability,rose two basis points, or 0.02 percentage point, to 3.09 percent, according to a weighted average compiled by the National Interbank Funding Center. It climbed seven basis points last week as Ping An Securities Co. estimated subscriptions for initial public offerings froze 1 trillion yuan ($164 billion) in funds.

“Money rates won’t fall further as the economic environment has improved,” said Yan Yan, a Shanghai-based analyst at China Guangfa Bank Co. “Interest-rate swaps are likely to rise a bit before the end of the month.”

The yield on the sovereign bonds due September 2024 declined two basis points today to 3.8 percent, according to the National Interbank Funding Center.

— With assistance by Helen Sun

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