China Swap Rate Declines as Manufacturing Data Misses Estimates

China’s interest-rate swaps fell as a gauge of manufacturing declined more than economists forecast, prompting economsits to predict further loosening measures.

A flash Purchasing Managers’ Index was at a seven-month low of 49.5 for December, below the dividing line between expansion and contraction at 50, data from HSBC Holdings Plc and Markit Economics showed today. That compared with the median estimate of 49.8 in a Bloomberg News survey. The People’s Bank of China didn’t conduct any open-market operations today, according to two traders at primary dealers required to bid at the auctions.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, declined four basis points to 3.33 percent as of 4:32 p.m. in Shanghai, according to data compiled by Bloomberg. The rate climbed as high as 3.41 percent before the manufacturing report was released and is still up 48 basis points this month.

“The situation calls for action from policy makers to ensure that a soft landing continues and the slowdown does not become too deep,” said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong. “We continue to expect a reserve-requirement-ratio cut in December, another one in the first half, and a rate cut in the first quarter.”

Government bonds climbed, with the yield on China’s sovereign bonds due September 2024 falling four basis points to 3.75 percent, according to prices from the National Interbank Funding Center.

The seven-day repo rate, a gauge of interbank funding availability, declined two basis points to 3.51 percent, a weighted average compiled by the National Interbank Funding Center shows. It slid 22 basis points yesterday.

A rate for one-week loans on the Shanghai Stock Exchange jumped 202 basis points to 7.25 percent, after touching 9.5 percent earlier, the highest since Nov. 25. About 11 initial public offerings will lock up as much as 3 trillion yuan ($484 billion) by early next week, the most this year, according to an estimate from Shenyin & Wanguo Securities Co.

— With assistance by Helen Sun

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