A general view of the skyline of Hong Kong File photo: VCG
China’s central bank sold 30 billion yuan ($4.28 billion) worth of bills in the Hong Kong Special Administrative Region (HKSAR) on Wednesday in its latest issuance, which was oversubscribed by 2.6 times.
The move that offshore investors were chasing yuan-denominated debt despite the lingering chaos in the city attests to market optimism about the Chinese currency, analysts said, noting that the move also illustrates the central government’s continued confidence in Hong Kong’s role as a global financial hub.
The People’s Bank of China (PBC), the country’s central bank, announced the issuance of 20 billion yuan of three-month bills priced at 2.9 percent and 10 billion yuan of one-year bills sold at 2.95 percent, according to its statement.
The auction was welcomed by the market, generating subscriptions of more than 78 billion yuan, or a 2.6 times oversubscription, the PBC statement said. Among those bidding for the bills were a variety of offshore investors including commercial banks, funds, central banks and international financial organizations.
“I believe that the PBC holds its yuan bill auctions in Hong Kong because it is an internationally recognized financial hub, which can attract more offshore investors from international backgrounds,” Tan Yaling, head of the China Forex Investment Research Institute, told the Global Times on Wednesday.
The increasing popularity of yuan-denominated debt among international institutions will also help stabilize the currency’s exchange rate, Tan said.
A phone conversation between China and the US on trade issues on Tuesday night prompted a rally in the yuan. In a matter of minutes after the news of the conversation broke, the yuan strengthened by more than 1,000 basis points (bps) to above the 7 mark against the US dollar before losing some ground later on.
The yuan’s daily fixing was set at 7.0312 per US dollar on Wednesday, a strengthening of 14 bps from the previous trading day.
The oversubscription reflects market confidence in the longer-term strength of the yuan and the Chinese economy at large, Song Fengming, a professor of finance at Tsinghua University, said.
The popularity of the bills among international financial institutions will facilitate the internationalization of the yuan, Song said.
Wednesday’s bill auction was the fifth sale of such bills since the first issuance in November 2018.
With 120 billion yuan of central bank yuan-denominated bills having been sold thus far, a regular mechanism for these auctions in Hong Kong has been created, helping enrich the portfolio of yuan-denominated investment products boasting high credit quality and yuan liquidity management tools in the Hong Kong market, read the PBC statement.
Offshore yuan-denominated debt issuances also improve the yield curve of these bonds in Hong Kong and the push for a globalized yuan, PBC said.
Newspaper headline: PBC holds auction of yuan debt in Hong Kong