Chinese interest rate swaps edged.......>

CHINA RATES: Chinese interest rate swaps edged higher yesterday despite the

weakness seen in Chinese equities and the yuan. The 2-year swap rose 0.5bps to

2.95% and the chart continues to look bullish after breaking above the 55-dma. A

break above 2.98% would likely confirm a bullish breakout. 

- This increase in rates and decline in equities has seen the 21-day rolling

correlation between the two assets drop further negative to 0.06. 

- We would not expect this inverse correlation to continue as higher rates

should reflect an improving outlook for the economy and Us trade relations,

which should be supportive of equities. It's also worth noting that equities are

looking very attractive from a yield perspective compared to bonds.