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As other traders rested Thursday night following China s cut indeposit and lending rates after the close of markets , the local interest-rate swap market sprung into action. Traders in the interest-rate swap market, typically the mostsensitive to such action by the central bank, communicated with oneanother for more than two hours following the announcement at 7p.m. local time. "We text each other and we used iPhone apps to strikedeals, one Shanghai-based broker said. We together set the new[yield] curve you saw when you came into the office thismorning." The interest-rate swap market's first deals of today werealso done before other markets open, right after 8 a.m. Beijingtime. China's bond and foreign-exchange markets both starttrading later at 9:30 a.m., with no pre-market trading. Interest-rate swaps, used by hedgers and speculators, lost between0.1 to 0.2 percentage point across the yield curve after the ratecut. Given they had partly priced in the cut, they fell less thanthe 0.25 percentage point cut of the one-year lending and depositrates, which is effective Friday. This isn t the first time interest-rate swap traders have foundthemselves working longer hours than other traders in China.Suffering from waning risk appetite because of the European debtcrisis, the swap market usually starts trading almost one hourbefore other markets. While forex traders are using their in-house models to forecast thedaily dollar-yuan central parity which is released by the centralbank at 9:15 a.m. and reading overnight news, interest-rate swaptraders might already be seeing prices fall after another bad dayin Europe. The one-year interest-rate swap lost around 0.80 percentage pointin May, partly on European woes and partly on rate-cut expectationsand other easing concerns. "You need to be very strong and healthy to traderates," said a Shanghai-based local bank trader. Investors use interest-rate swaps, a popular financial derivativelaunched in China in 2006, to swap fixed- and floating-ratecash-flow streams to protect themselves from interest-ratevolatility. A swap buyer pays fixed rates and receives floatingrates on expectations that the rates will rise, while thecounterparty or the seller does the opposite. -Wynne Wang Like China Real Time on Facebook for the latest updates. The e-commerce company in China offers quality products such as China Bmw Diagnostic Interface , Professional Automotive Diagnostic Tools, and more. For more , please visit Odometer Correction Kit today!
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