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  1. Yuan weakens as bond market leverage worries grow

Yuan weakens as bond market leverage worries grow

China's yuan weakened on Wednesday, after the dollar strengthened and the central bank conducted its first 14-day reverse repurchase operation in the money markets since February, which some analysts said indicated growing concerns over leverage.

By: | Shanghai | Published: August 24, 2016 11:00 AM
The People’s Bank of China set the midpoint rate at 6.642 per dollar prior to market open, firmer than the previous fix 6.6586 but the spot market edged down. (Source: Reuters)

China’s yuan weakened on Wednesday, after the dollar strengthened and the central bank conducted its first 14-day reverse repurchase operation in the money markets since February, which some analysts said indicated growing concerns over leverage.

The People’s Bank of China set the midpoint rate at 6.642 per dollar prior to market open, firmer than the previous fix 6.6586 but the spot market edged down.

The spot market opened at 6.6436 per dollar and was changing hands at 6.6538 at midday, 131 pips away from the last close and 0.18 percent away from the midpoint.

The spot rate is currently allowed to trade with a range 2 percent above or below the official fixing on any given day. The mild sell-off in the yuan came amidst a broader sell-off in yuan-denominated fixed-income assets, with Chinese treasury futures down around 0.1 percent on Wednesday, following an abrupt 0.38 percent fall on Tuesday in 10-year treasury futures for December delivery.

Sharp foreign inflows into Chinese onshore bonds reversed in July, recently released data from China’s main bond clearing house showed. Chinese bonds enjoyed a buoyant summer but have sold off recently amid rising worries on liquidity and leverage.

Analysts said the central bank’s decision Wednesday to conduct 14-day reverse repurchase agreements in the interbank market for the first time since February might be an attempt to head off rising leverage in the bond market.

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