LIBOR VS SHIBOR

Jun. 21, 2013 2:09 PM ET
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Contrarian, Arbitrage, Commodities, Gold & Precious Metals

Contributor Since 2011

Albert Sung is the author of Correlation Economics, monitoring breaking economic news on a day to day basis. He started investing in 2008 because of the economic crisis and holds a masters degree in chemical engineering. Previously, he worked several years as a process engineer at Ashland, a competitor of Dow Chemical. Today, he works as a regulatory compliance consultant at J&J, but his real passion will stay in macro-economics. His experience in the chemical and pharmaceutical industry allows him to monitor the economy from a process engineering standpoint, analyzing macro-economic charts, correlations and trends.

As an analogy on this post, we can do the same analysis in China.

Following site gives us the Shanghai LIBOR rates, namely: SHIBOR.

http://www.shibor.org/shibor/web/ShiborJPG_e.jsp

As you can see, we had a pretty big spike in SHIBOR (Chart 1), which also means a surge in China interest rates/funds rate.

Chart 1: SHIBOR

As you know a rise in interest rates means a rise in bond yields too, because there is this correlation between the funds rate, the mortgage rates and the bond yields.

Chart 2: 10 year China Bonds

As SHIBOR increases, so does the Chinese funds rate increase together with rising adjustable mortgage rates. And that has negative implications on the Chinese real estate market as you can see below.

So watching SHIBOR is a must, if you are invested in Chinese government bonds and Chinese real estate.

If SHIBOR goes up, bonds and real estate go down.

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