- Overnight Hibor Soars To 23.7%, Second Highest On Record, As PBOC War With Yuan Shorts Turns Ugly
by Tyler Durden, www.zerohedge.com
When last week Hong Kong’s overnight CNH funding rates exploded to the highest since January, many ascribed it to the liquidity scarcity ahead of Chinese holidays on Thursday and Friday. However, we claimed that as the PBOC continues its struggled to prevent USDCNH from rising above 6.70, pushing funding costs to stratospheric levels was precisely one of the tools it was using.
As we explained last Wednesday, “one reason for the latest surge in funding costs is that with Chinese and Hong Kong holidays on deck, liquidity is scarce. The Hong Kong market will be closed on Friday for the mid-autumn festival and the China markets will be closed on Thursday and Friday. China has traditionally intervened in currency markets just before holidays: last October using illiquidity just before its long National Day celebrations to intervene in Hong Kong and reduce an embarrassingly wide gap between the offshore and onshore rates. Of course, next week we will have the Fed and BOJ meetings as well, where uncertainty is leading to even more illiquidty.”
However, the most likely explanation is that in order to force Yuan shorts to capitulate as 6.70 remains just barely within reach, the PBOC is simply continuing to squeeze the yuan shorts and raising the cost of shorting yuan, as explained last week. Ultimately, the PBoC weakened its yuan fix by 169 pips to 6.6895 versus yesterday’s 6.6726, even as many were expecting the USDCNY to finally breach the the 6.70 resistance level, the defense of whjich may have explained today’s aggressive spike in HIBOR tightening.
This theory was validated overnight when the overnight interbank yuan rate surged the most since January in Hong Kong amid what Bloomberg said was “speculation China’s central bank is intervening to fend off bearish bets on the currency.” The offshore yuan funding cost, known as Hibor,jumped 15.7% points in its second-biggest gain on record to 23.7% according to a fixing from the Treasury Markets Association.That’s the highest since January, when the People’s Bank of China was also suspected to be mopping up liquidity to boost the exchange rate. Funding conditions tightened on Monday even after the Hong Kong Monetary Authority said Thursday banks in the city had tapped its liquidity facilities. The three-month yuan interbank rate climbed 81 basis points in Hong Kong to 5.86%, the highest since February, while the one-month rate increased to an eight-month high.