Yuan's Overnight Rate Jumps by a Record in Hong Kong to New High

  • Tightening comes amid speculation PBOC has been buying yuan
  • Offshore yuan climbs to highest level since August devaluation

An overnight rate to borrow yuan in Hong Kong jumped by a record to an all-time high as the currency’s offshore exchange rate climbed to the strongest level since an Aug. 11 devaluation.

The Hong Kong Interbank Offered Rate surged 535 basis points to 8.73 percent, a Treasury Markets Association fixing showed. That’s the highest since the fixings began in June 2013. The yuan rose as much as 0.35 percent to 6.3574 per dollar in the city, before paring its advance to 0.19 percent as of 2:41 p.m. local time. The currency appreciated 0.07 percent in Shanghai.

The People’s Bank of China has been intervening in both the onshore and offshore currency markets to prop up its exchange rate in recent weeks, a policy that withdraws yuan from the financial system. The authority bought yuan in both Shanghai and Hong Kong through agents of state lenders on Friday, according to two people familiar with the matter. The offshore yuan advanced on Tuesday for the fourth day in a row, rallying amid a selloff in emerging-market assets.

"Suspected PBOC intervention in the offshore yuan market could be a
reason" for the jump in Hibor, said Tommy Ong, a managing director for treasury and markets at DBS Hong Kong Ltd. "The dollar selling in the offshore market could result in a drain in yuan supply. But unlike in the onshore market where the PBOC can replenish liquidity with open-market operations, the central bank can’t do it in the offshore market."

Yuan Hibor rates for tenors of one week and three months both climbed the most since Aug. 25, advancing by 197 basis points and 30 basis points, respectively.

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