Interest-rate swaps fall as China aims to boost growth

Beijing: China's interest-rate swaps dropped last week after the central bank said it favoured policies to bolster economic growth, prompting speculation it will delay increases in borrowing costs.

The People's Bank of China said on Friday it will stick to a moderately loose monetary policy as growth becomes better balanced between consumption, investment and exports. It has added cash to the money market for seven consecutive weeks via open-market operations.

"The swap curve has become flatter because investors have cut bets on the possibility that China will tighten monetary policy," said Ye Yuzhang, an interest-rate trader with Industrial Bank Company Limited in Shanghai. "The short-end swap rate dropped more than the long-end because funding availability has become even easier."

Rate falls

The one-year interest-rate swap, which measures the fixed cost to receive the floating seven-day repurchase rate, fell five basis point last week to 2.23 per cent, data compiled by Bloomberg showed. Contracts due in three years receded two basis points in the last five days to 2.67 per cent.

The seven-day repurchase rate, a measure of lending costs between banks, slumped 30 basis points last week to 2.32 per cent, according to a fixing rate published daily by the National Interbank Funding Centre. More cash will return to the market after the initial public offerings of Agricultural Bank of China Limited, which locked up a total of 480.3 billion yuan (Dh260.36 billion) of subscription capital, according to the lender's statement on Thursday.

Government bonds advanced last week on easier liquidity between banks. The yield on the 2.53 per cent note due in June 2015 slid four basis points to 2.59 per cent, and the price of the security added 0.18 per 100 yuan face amount to 99.72, the funding centre data showed.

The yuan traded at 6.7716 per dollar Friday, little changed from 6.7761 Thursday and 6.7711 a week ago, according to the China Foreign Exchange Trade System. The currency has strengthened 0.8 per cent since the central bank loosened control of the exchange rate on June 19.