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 on 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 2.77 percent yield on Chinese government bonds of the same tenor traded in the onshore market
• Both tenors are over-subscribed, with 42.6 billion yuan of orders being placed for the three-month notes and 32.9 billion yuan put in for the one-year bills, according to a statement from the Hong Kong Monetary Authority

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 result suggests that investors may require a higher premium to hold onto the bills given the uncertain yuan outlook when the offshore yuan's liquidity is not particularly loose,” said Frances Cheung, head of Asia macro strategy at Westpac Banking Corp. in Singapore
• “The rates on the PBOC bills are higher than expected, as the offshore yuan's implied yields were high when the orders were priced Wednesday morning,” said Becky Liu, Hong Kong-based head of China macro strategy at Standard Chartered. “This won't have significant impacts on the yuan in the longer term”

Market Reactions

• The offshore yuan rose 0.18 percent to 6.9116 per dollar as of 6:04 p.m. in Hong Kong, erasing an earlier loss of as much as 0.22 percent
• The onshore rate is little changed at 6.9161 per dollar
• The offshore yuan's three-month forward points decreased 31 to 113 points
• 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 rose 15 basis points to 3.61113 percent

Get More

• Read about the PBOC's last sale in London here
• PBOC adviser Ma Jun said Tuesday whether or not China's yuan hits 7 per dollar “isn't that crucial,” as market players have accepted that the currency is more flexible

To contact the reporter on this story: Tian Chen in Hong Kong at tchen259@bloomberg.net

To contact the editors responsible for this story: Sarah Wells at smcdonald23@bloomberg.net, Fion Li

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