China Yuan Swaps Soar Amid Fears Evergrande Default Will Lead To Liquidity Crisis

The initial contagion from the upcoming default of Evergrande, which after the company’s hiring of bankruptcy advisor Houlihan Lokey is just a matter of days, is starting to emerge.

China’s one-year onshore swap curves surged to the highest in almost four years, signaling market worries over liquidity shortage on potential default by a key property developer Evergrande. Interbank borrowing costs also rise ahead of the central bank’s medium-term lending facility operation on Wednesday.

As Bloomberg notes the 1-year dollar-yuan onshore swap – a gauge of funding costs for the Chinese currency via the foreign exchange market – surged as high as 1,843 pips Tuesday, the highest in almost four years.

“Considering huge uncertainties over the key developer’s bond default and the possible spillover to the property sector, market participants might intend to swap more CNH and CNY liquidity

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