China’s Repo Market Hit Hard as Yuan Defense Sparks Cash Squeeze

China’s strategy of defending its currency by choking local liquidity is sending ripples throughout the financial system, squeezing banks and fueling losses at bond funds.

The People’s Bank of China has drained cash through open market operations most days this month, supporting the yuan by making it more scarce. But that has had unintended consequences: Banks have hoarded cash rather than lend it to rivals, while debt funds have suffered losses as investors sell bonds to raise money. China’s 10-year bond yield hit its highest level since December on Monday.