China’s swap curve steepens as deflation fears ease

A long-standing inversion in China’s interest-rate swap curve has corrected, suggesting growing investor confidence that recent stimulus efforts may help reflate the economy. On Friday, the five-year swap rate rose above the one-year rate, ending a deflation-driven discount that had peaked at 15 basis points in February.

Becky Liu of Standard Chartered said the move reflects optimism around supply-side reforms that could lift China out of deflation over the next 12–24 months. While near-term rate cuts are still expected, longer-term sentiment is turning less bearish.

ANZ’s Xing Zhaopeng added that the steepening swap curve may persist, indicating the early stages of a shift in market expectations for China’s economic recovery.

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I wonder when we’ll see signs of deflation easing in the data?

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Earlier, a very solid rate setting for CNY: