China’s Swaps Cap Biggest Weekly Drop in Year as Market Expands

China’s one-year interest-rate swap completed the biggest weekly drop in almost a year as the government prepares measures to expand the money market.

Premier Li Keqiang said this week that social security funds will be allowed to buy certificates of deposit on the interbank market and municipal bonds. Goldman Sachs Group Inc. expects a new system to insure banks’ deposits in May will require the central bank to cut rates that lenders use to borrow from one another to near those on deposits. The People’s Bank of China is set to remove the cap on interest rates paid on cash parked with lenders.

The cost of one-year swaps, the fixed payment to receive the floating seven-day repurchase rate, declined 30 basis points this week to 3.28 percent in Shanghai, according to data compiled by Bloomberg. That’s the biggest five-day drop since April 18. It fell four basis points, or 0.04 percentage point, Friday.

“Interbank liquidity tightness has eased recently thanks to the comfort signs sent by the government to bring more funds into the market,” said Huang Yanhong, an analyst at Bank of Nanjing Co. in Jiangsu province. “The central bank will continue to keep money rates reasonably low.”

The seven-day repo rate, a gauge of interbank funding availability, declined 52 basis points this week to 3.40 percent, a weighted average compiled by the National Interbank Funding Center shows. It fell for a fifth week, the longest streak since 2010, and dropped 17 basis points Friday.

The People’s Bank of China injected a net 5 billion yuan ($807 million) into the financial system in the last four days, adding funds through open-market operations for a second week, data compiled by Bloomberg show.

IPOs Coming

The China Securities Regulatory Commission approved 30 companies’ applications on Thursday for initial public share offerings. That could lock up more than 3 trillion yuan, according to estimates by Guotai Junan Securities Co.

The central bank will probably use open-market operations or other short-term liquidity tools to avoid any spikes in money rates, Bank of Nanjing’s Huang said.

The yield on China’s sovereign bonds due December 2024 rose two basis points this week to 3.59 percent, prices from the National Interbank Funding Center show. It climbed one basis point Friday.

Cloud Live Technology Group Co. couldn’t raise enough funds for a debt repayment due on April 4, the company said in a statement dated Friday. With more defaults occurring and an implicit guarantee fading, risk-free rates will be able to see further downside, Haitong Securities Co. analysts led by Jiang Chao wrote in a research note Thursday.

— With assistance by Helen Sun

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