Renminbi Series: Yuan-Hibor turns negative first time ever

Remember the Hibor? That came notoriously famous as after this Yuan based, Hong Kong interbank offered rate, in January reached 66.8% in January.

At that time People’s Bank of China (PBoC) drained Yuan liquidity from Hong Kong market to deter the speculators from shorting the offshore Yuan which is traded in Hong Kong and not subjected to 2% trading band from central parity unlike its onshore counterpart. At that time spread between onshore and offshore counterpart reached more than 2%.

While HKD based libor is used as a benchmark for trillions of HKD worth of mortgages, Yuan based Hibor’s applications have been limited. So real world implications of reeling it to as high as 66% or fall below zero are limited.

Nevertheless, it indicates demand for Yuan.

Since that notorious January move, Yuan Hibor has somewhat stabilized near 2% but for the first time ever today, it has fallen into negative territory. Today, based on the quotations available from 20 banks, Yuan-Hibor was set at -3.725%, which means, anyone who borrows money in Yuan will in fact be compensated.

This probably indicative that Yuan demand is tepid in Hong Kong, so focus now will be whether PBoC draws liquidity so that it turns positive or let it run in negative for the time being.

Yuan is currently trading at 6.46 per Dollar in onshore and 6.469 per Dollar in offshore market.