China’s Central Bank Raises 20 Billion Yuan in First Bill Issuance in Hong Kong

(Bloomberg) -- The People’s Bank of China sold 20 billion yuan ($2.9 billion) of bills in its first issuance in Hong Kong Wednesday, a move that could reduce the offshore yuan’s liquidity and support the Chinese currency.

• PBOC sold 10 billion yuan of three-month bills at 3.79 percent, according to a statement on the central bank’s website
• It issued 10 billion yuan of one-year notes at 4.2 percent, versus 2.78 percent yield on Chinese government bonds of the same tenor traded in the onshore market

Key Insights

• PBOC bill issuance can improve the yield curve in the offshore market, providing benchmark for other yuan products, according to Hong Kong Monetary Authority Chief Executive Norman Chan
• The timing suggests the Chinese central bank is making preparations to pre-empt possible short-yuan positions built following the U.S. mid-term election, Standard Chartered’s Becky Liu said before the issuance

Market Reactions

• The offshore yuan slipped 0.02 percent to 6.9252 per dollar as of 12:21 p.m. in Hong Kong, trimming a loss of as much as 0.22 percent earlier the day
• The onshore rate dropped 0.23 percent to at 6.9337
• The offshore yuan’s three-month forward points increased 17 to 161.5
• The currency’s three-month Hong Kong interbank borrowing costs, known as CNH Hibor, fell 5 basis points to 3.895 percent, while the one-month rate climbs 15 basis points to 3.61113 percent

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