China Rate Swaps Cap Weekly Decline as More PBOC Easing Seen

  • Third-quarter GDP growth seen slowest since 2009, survey shows
  • Coupon on 10-year debt fell below 3% for first time since 2008

China’s interest-rate swaps had the biggest weekly drop since August after trade and inflation data added to signs the economy is weakening, fueling speculation more monetary easing is on the way.

The cost of one-year swaps, the fixed payment to receive the floating seven-day repurchase rate, declined five basis points from Oct. 9 to 2.41 percent as of 4:56 p.m. in Shanghai. It fell one basis point on Friday. Imports slid 17.7 percent from a year earlier in yuan terms last month, while factory-gate prices dropped for the 43rd month in a row, official data showed this week.

The People’s Bank of China has cut interest rates five times since November and lowered the proportion of deposits banks have to set aside as reserves in an effort to cushion the economy’s slowdown. A report on Monday is forecast to show gross domestic product increased 6.8 percent in the third quarter, according to a Bloomberg survey. That would be the smallest gain since the first three months of 2009, during a global recession.

“It’s almost certain that the bottom hasn’t been seen yet,” Huang Wentao, a Beijing-based bond analyst at China Securities Co., wrote in a note. "There’s room for further interest-rate cuts, though reductions in reserve-requirement ratios may be more appropriate" given that there’s pressure on the yuan to depreciate, he said. 

The yield on sovereign bonds due July 2025 fell three basis points from a week earlier to 3.14 percent, according to prices from the National Interbank Funding Center. It climbed five basis points on Friday. The Ministry of Finance on Wednesday auctioned 10-year debt with a coupon of less than 3 percent for the first time since 2008.

The seven-day repo rate, a gauge of interbank funding availability, rose two basis points this week to 2.38 percent, a weighted average from the National Interbank Funding Center shows. The rate declined one basis point on Friday.

— With assistance by Helen Sun

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