China state banks seen busy with FX swaps, pressing swap points to negative

　　div classBodysc17zpet90 cdBBJodivpSHANGHAI Reuters Chinas major stateowned banks were actively swapping yuan for dollars in the onshore forwards market on Tuesday, five banking sources said, pressuring swap points into negative territory for the first time in more than three years.p

　　pThe swaps exacerbated dollar liquidity tensions as U.S. yields rose rapidly and the yield gap between the worlds two largest economies effectively vanished.pdivdivdiv classBodysc17zpet90 cdBBJodiv

　　pThe sources with knowledge of the matter told Reuters that state banks were seen swapping yuan for dollars in the onshore forwards market, leaving oneyear dollaryuan swap points to a low of 51 points, the lowest level since March 2019.p

　　pBuysell swaps help to reduce the supply of dollars that the market can access to shortsell the yuan.p

　　pState banks usually trade on behalf of the central bank in Chinas FX market but they can also trade on their own behalf or execute orders for their corporate clients.p

　　pOne of the sources noted that the cost of accessing dollar funding by overseas Chinese banks had been rising rapidly, and using FX swaps to obtain dollars had become rather “costeffective”.p

　　pState lenders used such tactics frequently in 2019 to support the Chinese currency, which faced mounting depreciation pressure due to heightened bilateral trade tensions with the United States.p

　　pThis time around, the yuan regained some downside pressure, with the onshore yuan losing about 5.5 of its value against the dollar this year to trade at an 18month low as of Tuesday.p

　　p Reporting by the Shanghai and Beijing Newsroom Editing by Andrew Heavens, Robert Birselp

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