Inflation Fight Spurs Record Swap-Curve Inversion: China Credit

Banks in China are more confident than ever that policy makers will bring inflation under control in the coming year by using monetary tightening to curb credit.

Swap contracts show that this month, for the first time since 2008, it’s become cheaper for lenders to lock in interest rates for five years rather than one as UBS AG, Morgan Stanley and Deutsche Bank AG lowered economic growth forecasts for China. The gap between the five- and one-year swaps widened to a record after Standard Chartered Plc and Bank of America Merrill Lynch said the central bank issued a notice on Aug. 26 broadening the scope of reserve-requirement ratios.