China Swap Rate Caps Weekly Decline as Ample Cash Supply Seen

China’s one-year interest-rate swaps capped their first weekly drop in five on bets the central bank will ensure an ample cash supply as the economy keeps slowing.

Exports and imports fell last month from a year earlier, according to median estimates in a Bloomberg survey before data due Saturday, while the official Purchasing Managers’ Index came in at its lowest reading since February. A 28 percent drop in the Shanghai Composite Index of stocks since its mid-June peak is also driving funds back to banks.

“The risk for an economic downturn in the third quarter is still large,” said Huang Wentao, a Beijing-based analyst at China Securities Co. “Interbank liquidity will remain flush, with some people saying funds seem to be inexhaustible.”

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, fell six basis points this week to 2.48 percent as of 5:46 p.m. in Shanghai, data compiled by Bloomberg show. It rose four basis points on Friday from a one-month low.

The seven-day repurchase rate, a gauge of interbank funding availability, fell two basis points this week to 2.42 percent, according to a weighted average from the National Interbank Funding Center. It rose 13 basis points Friday after declining 10 basis points on Thursday.

Liaoning province sold 400 million yuan ($64 million) of 10-year debt on Friday, less than the 550 million yuan target, the first time a municipal sale has failed to reach its goal, according to a statement on the China Central Depository & Clearing Co. The coupon rate was 15 percent higher than the sovereign yield, the maximum allowed.

The yield on the government notes due July 2025 dropped two basis points this week and was steady Friday at 3.48 percent, National Interbank Funding Center prices show.

— With assistance by Helen Sun

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