Chinese swaps are showing some bounce...>

CHINA RATES: Chinese swaps are showing some bounce potential in line with the

stabilization in equity markets, with the 1-year swap currently trading at

2.8750% and threatening to break above steeply sloping downtrend resistance at

2.9000%. 

- As policymakers look to boost fiscal spending in the second half of the year

and rely less on monetary policy, this should create the fundamental backdrop

for a drift higher in rates. 

- However, with the 120-day rolling correlation between 1-year swaps and the CSI

300 at a near-record high 0.92, the performance of the equity market is likely

to dominate rate movements in the near term.