China Rate Swaps in Longest Gain Since 2014 as PBOC Seen on Hold

  • Past rate cuts will help stabilize economy, analyst says
  • PBOC has lowered benchmark borrowing costs six times in a year

China’s one-year interest-rate swaps rose for a sixth day, the longest streak in 11 months, on speculation the central bank will refrain from lowering policy rates further.

The cost of one-year swaps, the fixed payment to receive the floating seven-day repurchase rate, climbed one basis point to 2.37 percent as of 4:30 p.m. in Shanghai. That’s the highest since Oct. 23, when the People’s Bank of China announced cuts in borrowing costs and lenders’ reserve-requirement ratios after markets closed.

The PBOC has lowered benchmark interest rates six times since November, and a Bloomberg survey shows the authority will probably leave its one-year lending and savings rates at current levels through 2016. The central bank kept the seven-day reverse repo rate unchanged in Tuesday’s operations, signaling a lack of intention to guide money rates lower for now, according to Citic Securities Co.

“There’s no need for further loosening in the short term,” said Lin Yijian, an analyst at Guangzhou Rural Commercial Bank Co. “The previous loosening measures are expected to help the economy stabilize before the year-end.”

The Ministry of Finance auctioned 28 billion yuan ($4.4 billion) of 10-year bonds at a yield of 3.09 percent Wednesday. That compares with 3.08 percent in secondary market trading on Tuesday.

The yield on bonds due October 2025 rose for a second day, increasing four basis points to 3.14 percent, the highest since the notes started trading, according to National Interbank Funding Center prices.

The PBOC auctioned 10 billion yuan of seven-day reverse-repo agreements on Tuesday at 2.25 percent. The amount of injections matched that of maturing contracts, resulting in a net neutral position.

The seven-day repo rate, a gauge of interbank funding availability, fell one basis point to 2.31 percent, a weighted average from the National Interbank Funding Center shows.

— With assistance by Helen Sun

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