China Swap Rate Rises Most in a Month as Loosening Bets Wane

China’s one-year interest-rate swaps climbed the most in a month on speculation the central bank will refrain from cutting borrowing costs to deter outflows.

The People’s Bank of China sold 45 billion yuan ($7.2 billion) of 28-day reverse-repurchase contracts Thursday at 4.8 percent, the same rate as Tuesday, according to a statement on its website. The secondary-market rate was 5.14 percent on Wednesday. The yuan has dropped 0.3 percent so far this week and is near the weak end of its daily trading band.

“Yuan depreciation pressure will probably lower the chance for the PBOC to cut interest rates or reserve requirements in the near term,” said Frank Sun, an analyst at Shanghai CFETS-ICAP International Money Broking Co. in the city. “The loosening expectation may not be realized.”

The cost of one-year swaps, the fixed payment to receive the floating seven-day repo rate, rose nine basis points to 3.40 percent as of 4:57 p.m. in Shanghai, data compiled by Bloomberg show. That was the biggest increase since Dec. 11. The rate has increased 19 basis points in the past three days.

The central bank has injected a net 55 billion yuan via open-market operations this week, up from 50 billion yuan in the five days ended Jan. 23, data compiled by Bloomberg show. The 28-day contracts sold today will help banks cope with the Feb. 18-24 Chinese New Year holidays, as pre-festival cash demand usually drives up interbank rates.

The yield on the 4.13 percent government bonds due September 2024 rose three basis points, or 0.03 percentage point, to 3.51 percent, according to National Interbank Funding Center prices. The rate fell to 3.43 percent on Jan. 26, the lowest since the securities were sold in October.

The seven-day repo rate, a gauge of interbank funding availability, gained 11 basis points to 4.03 percent, according to a weighted average from the National Interbank Funding Center. That’s the biggest increase since Jan. 22.

— With assistance by Helen Sun

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