Bloomberg News

China’s Bank Default Swaps Drop as State Investor Buys Shares

October 11, 2011

Oct. 11 (Bloomberg) -- Credit-default swaps insuring China’s bank debt fell after state-run Central Huijin Investment Ltd. started buying stock.

The cost of protecting debt of Bank of China Ltd. against non-payment for five years declined 13.5 basis points to 297.5 basis points as of 4:17 p.m. in Hong Kong, according to data provider CMA. Contracts on China Development Bank Corp.’s debt fell 8.2 to 330.1. A decrease signals improving perceptions of credit quality.

Central Huijin, set up to hold the government’s stakes in the banks, boosted its holdings after valuations sank below levels during the global financial crisis. The arm of China’s sovereign wealth fund began buying shares of Agricultural Bank of China Ltd., Bank of China, China Construction Bank Corp. and Industrial & Commercial Bank of China Ltd. from today and will continue with “related market operations,” it said on its website, without providing further details.

Five-year contracts protecting Chinese government debt against default fell 2.1 basis points to 154.5 basis points yesterday, the lowest level since Sept. 21, according to CMA, which compiles prices quoted by dealers in the privately negotiated market.

The contracts were quoted 9 basis points lower today at 147.5 as of 2:20 p.m. in Singapore, Royal Bank of Scotland Group Plc prices show. A close of 147.5 would be the lowest since Sept. 21, CMA prices show. Contracts protecting the debt of Export-Import Bank of China against non-payment fell 15.8 to 280.2 basis points, CMA prices show.

--With assistance from Abigail Moses in London. Editors: Pavel Alpeyev, Shelley Smith

To contact the reporter on this story: Katrina Nicholas in Singapore at knicholas2@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net


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