Chinese rate markets are shrugging......>

CHINA RATES: Chinese rate markets are shrugging off the return of risk aversion

that is undermining stocks and global rates, with the 2-year swap up 2.5bps at

2.5650%. This has seen the US-China spread edge down to 12bps from recent highs

of 20bps. 

- The recent strength in the yuan gives the PBOC more room to ease policy but at

the same time is pointing to a pick up in optimism over the Chinese economy

which may suggest less easing is needed. 

- While the US swap curve is inverted China's curve remains relatively steep.

There is room for this trend to reverse from current extremes as China's short

end rises in response to Chinese equity outperformance.