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China to help rate risk-hedging by improving liquidity of derivatives By Reuters

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China to help rate risk-hedging by improving liquidity of derivatives By Reuters


China to help rate risk-hedging by improving liquidity of derivatives

SHANGHAI (Reuters) – The operator of China’s interbank market said on Friday it will add to its trading system swap contracts involving two new lending benchmark rates, to help institutions better manage interest rate risks.

Swaps based on one-year and five-year loan prime rates (LPR) will start trading on the so-called X-Swap system starting next Monday, the National Interbank Funding Center said in a statement on its website.

The addition of the contracts, with tenors ranging from six months to 10 years, is aimed at improving liquidity of LPR swaps, according to the statement.

China unveiled a key interest rate reform this month in an effort to guide borrowing cost lower for companies in a struggling economy.

The People’s Bank of China revamped LPRs, making them closer to market rates, while forcing banks to use them as benchmarks for new loans. The change would potentially guide banks’ lending rates lower.

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