China Rate Swap Rises for a Second Week as Stimulus Bets Recede

By Bloomberg News

China’s interest-rate swaps climbed for a second week as improving lending data and the central bank’s use of targeted fund injections damped speculation there will be more broad-based loosening policies.
The cost of the swaps, the fixed payment to receive the floating seven-day repurchase rate, rose eight basis points this week to 3.34 percent as of 4:37 p.m. in Shanghai, after climbing 41 basis points in the first five days of this month, according to data compiled by Bloomberg. It fell four basis points today, following a 14 basis point jump yesterday that was the biggest increase since January.
The People’s Bank of China injected 400 billion yuan ($64.6 billion) into the interbank market via China Development Bank starting Dec. 10, a person familiar with the matter said yesterday. Local currency loans in November gained from the
previous month to 852.7 billion yuan while aggregate financing jumped to 1.15 trillion yuan, both exceeding estimates, today’s data from the central bank showed.
“The central bank will probably use the new tools such as various lending facilities in the near term to adjust liquidity,” said Cao Yang, a Shanghai-based analyst at Shanghai Pudong Development Bank Co. “It will refrain from system-wide loosening, at least before the year-end.”
The seven-day repo rate, a gauge of interbank funding availability, rose 32 basis points this week to 3.75 percent, a weighted average compiled by the National Interbank Funding Center shows. The rate fell six basis points, or 0.06 percentage point, today.

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Industrial production rose 7.2 percent from a year earlier last month, less than a projected growth of 7.5 percent in a Bloomberg News survey. Fixed-asset investments expanded 15.8 percent in January through November from a year earlier, down from first ten months’ 15.9 percent increase.
The yield on China’s sovereign bonds due September 2024 declined five basis points this week to 3.80 percent, according to prices from the National Interbank Funding Center. It was steady today.
China’s leaders will keep the economy on track next year by adopting a prudent monetary stance, the official Xinhua News Agency said in a summary of the policy-setting Central Economic Work Conference yesterday. The target for gross domestic product growth has been lowered at the conference, the China Business News reported, without saying by how much.