Hong Kong Yuan Deposit Rates Surge to Record After Devaluation

Hong Kong Yuan Deposit Rate Curve

Yuan deposit rates in Hong Kong climbed to a record on speculation this month’s surprise devaluation and a global markets rout are fueling an exodus from the currency.

The one-week interbank savings rate jumped as much as 840 basis points to 22.9 percent, the highest in data going back to 2010. The rate pared its advance and was at 16 percent as of 10:53 a.m. in Hong Kong, according to prices compiled by Bloomberg. That compares with 3.3 percent at the start of the month.

The People’s Bank of China unexpectedly devalued the yuan on Aug. 11, triggering the currency’s steepest slide in two decades. A selloff Monday wiped about $2.7 trillion from global equity markets.

“People have become jittery after the devaluation,” said Lawrence Kung, head of the deposits department at Wing Lung Bank Ltd. in Hong Kong. “With the stock rout, some are converting their yuan holdings back into U.S. dollar or Hong Kong dollar for safe haven. It was like a spark and now you have a big fire. The short end of the offshore yuan pool is quite tight.”

The offshore yuan climbed 0.4 percent in Hong Kong Tuesday, halting a four-day losing streak. The average yield on Dim Sum bonds rose for a 10th day, rising five basis points to 5.39 percent on Monday, the highest since April, an index compiled by Deutsche Bank AG showed.

Chinese stocks slumped for a fourth day, extending the steepest rout since 2007, on concern the government is paring back support for the market.

“It’s hard to see Hong Kong’s yuan rates falling from current levels in the near term as investor confidence remains fragile,” Kung said.

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