China central bank's HK yuan bill sales a bid to ease pressure from speculators

Shanghai

CHINA'S central bank conducted its fourth sale of offshore bills in Hong Kong on Wednesday in new tenors, in a move to develop the offshore yuan curve and curb speculative pressure on the currency.

The People's Bank of China (PBOC) sold 30 billion yuan (S$5.9 billion) of bills in Hong Kong, it said in a statement. A 20 billion yuan one-month tranche was priced at a coupon of 2.80 per cent, while a six-month tranche worth 10 billion yuan came in with a coupon of 2.82 per cent.

It was the PBOC's first issuance of one-month and six-month bills in Hong Kong. Previous sales featured only one-year and three-month tenors.

The central bank said bids exceeded 85 billion yuan.

Investors included commercial banks, funds, investment banks, central banks and international financial organisations, the PBOC said.

The previous sale in May attracted more than 100 billion yuan in bids for 20 billion yuan of offshore bills.

The bank said the sale satisfied market demand, helping form a better offshore yuan yield curve and promoting the yuan's internationalisation.

While the 85 billion yuan in bids accounted for approximately 14 per cent of Hong Kong's offshore yuan pool, liquidity conditions in Hong Kong were loose on Wednesday, with the overnight CNH Hong Kong Interbank Offered Rate falling to 1.77967 per cent, its lowest level since March 14.

Hao Zhou, an analyst at Commerzbank in Singapore, said the bill sale was a "gesture to warn yuan shorters".

"The PBOC is able to increase the cost of shorting CNH, but the issuance price is quite normal compared with other bills," he said.

It suggested that while the central bank is signalling it's able to increase the cost of funds for offshore yuan, "the pricing tells you that they don't want to shock the market", he added.

Onshore liquidity indicators also showed flush cash conditions, with the overnight Shanghai Interbank Offered Rate falling to 0.9910 per cent on Wednesday, its lowest level in a decade.

Steady injections of cash by the PBOC into the banking system to meet rising seasonal demand and to reassure markets following the regulatory takeover of a regional bank have kept liquidity conditions ample. REUTERS