Bearish Swaps Signal Divides SocGen, Deutsche Bank: China Credit – Bloomberg 03-03-13

Salient to Investors:

Bank of America Merrill Lynch said curve flattening will persist. Wee-Khoon Chong at SocGen predicted the spread will narrow by another 30 basis points by the end of April, and sys the flattening yield curve reflects risks that a surge in bank lending in January could fan inflation, complicating efforts to stem a property-market bubble.

Deutsche Bank forecast a 20 basis point widening over three months, while Standard Chartered expects a reversal of February’s tightening. HSBC Holdings recommends investors bet on steepening should the gap reach 25 basis points.

Deutsche Bank, HSBC and Standard Chartered say the reintroduction of repo auctions on February 19 did not signal a tightening stance by the PBOC

Andre de Silva at HSBC said the existing swap curve is fair relative his own PMI readings, suggesting further flattening is limited.

Ethan Mou at Bank of America said signs of policy tightening bias may be under-appreciated, and forecasts the gap between China’s 5 and 2-yr swap contracts will narrow a further 15 to 20 basis points by June 2013 as the government rolls out new measures to control the property markets. Mou said there is a risk that the economic recovery may not be as strong as the market expects, and the global environment and rates are also pushing for curve flattening.

Read the full article at http://www.bloomberg.com/news/2013-03-03/bearish-swaps-signal-divides-socgen-deutsche-bank-china-credit.html

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Bank of America Merrill Lynch said curve flattening will persist. Wee-Khoon Chong at SocGen predicted the spread will narrow by another 30 basis points by the end of April, and sys the flattening yield curve reflects risks that a surge in bank lending in January could fan inflation, complicating efforts to stem a property-market bubble.

Deutsche Bank forecast a 20 basis point widening over three months, while Standard Chartered expects a reversal of February’s tightening. HSBC Holdings recommends investors bet on steepening should the gap reach 25 basis points.

The reintroduction of repo auctions on Feb. 19 didn’t signal a tightening stance by the PBOC, according to strategists at Deutsche Bank, HSBC and Standard Chartered.

Andre de Silva at HSBC said the existing swap curve is fair relative his own PMI readings, suggesting further flattening is limited.

Ethan Mou at Bank of America said signs of policy tightening bias may be under-appreciated, and forecasts the gap between China’s 5 and 2-yr swap contracts will narrow a further 15 to 20 basis points by June 2013 as the government rolls out new measures to control the property markets. Mou said there is a risk that the economic recovery may not be as strong as the market expects, and the global environment and rates are also pushing for curve flattening.