Crisis Gauge Flags China Cash Squeeze Followed by Growth Hit

Traders in China’s interest-rate swap market are bracing for a cash shortage as the central bank cools an overheated property market. Bond investors are preparing to benefit from the slower economic growth that may result.

That’s how strategists are interpreting a blowout in the premium for the one-year swap rate over the similar-maturity sovereign bond yield to 52 basis points, the widest since July 2015. China’s version of the so-called TED spread, a gauge of financial stress that compares funding costs for banks and the government, is well below the 140 basis points reached during the trust finance crackdown of early 2014.