China’s Swap Rate Caps Biggest Weekly Advance in Three Months

China’s one-year interest-rate swaps capped the biggest weekly gain in almost three months on speculation an improvement in manufacturing weakens the case for further monetary easing.

A preliminary manufacturing Purchasing Managers’ Index was 50.1 for February, data from HSBC Holdings Plc and Markit Economics showed Feb. 25. That exceeded the median estimate of 49.5 in a Bloomberg survey and January’s final reading of 49.7. Numbers above 50 indicate expansion. The data damped expectations that interest rates would be cut imminently, Frances Cheung, head of Asia ex-Japan rates strategy at Societe Generale CIB in Hong Kong, said Thursday.

The fixed payment to receive the floating seven-day repurchase rate increased 18 basis points to 3.38 percent since the markets re-opened Feb. 25 after the Lunar New Year holiday, data compiled by Bloomberg show. That’s the biggest weekly advance since the period ended Dec. 5.

“It’s hard to be optimistic about interest rates,” said Xu Hanfei, a Shanghai-based analyst at Guotai Junan Securities Co. “The economy, in the next couple months, may not be as bad as some expected.”

The yield on China’s sovereign bonds due September 2024 rose two basis points, or 0.02 percentage point, from Feb. 17 to 3.38 percent, according to National Interbank Funding Center prices. It was unchanged today.

The seven-day repurchase rate, a gauge of interbank funding availability, increased for a seventh week, rising two basis points to 4.83 percent, according to a weighted average compiled by the National Interbank Funding Center. The rate, which jumped 19 basis points Friday, surged 106 basis points in the last six weeks as initial public offerings and the holidays spurred demand for funds.

The People’s Bank of China added 38 billion yuan ($6.1 billion) using reverse-repurchase agreements on Thursday, helping mitigate the impact of 180 billion yuan of similar contracts that matured this week, draining funds. The central bank auctioned 50 billion yuan of six-month treasury deposits at 4.97 percent Friday, less than the 100 billion yuan that matured. The rate was 4.68 percent at a similar sale in January.

— With assistance by Helen Sun

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