HALISTER1: Soaring USD Libor Pressuring Yuan, China Bonds: Citic Securities

Soaring USD Libor Pressuring Yuan, China Bonds: Citic Securities

(Bloomberg) -- Rising USD Libor is adding depreciation pressure on yuan as Chinese corporates step up repayment of external debt, Citic Securities head of fixed income research Ming Ming writes in a note today.
  • Global dollar liquidity is tightening due to rising demand driven by increased Fed rate hike expectation and ahead of new U.S. money market regulation
  • As USD Libor rises, Chinese companies are under pressure to pay external debt in advance, which could lead to selling pressure for yuan
    • Higher USD Libor increases funding cost for Chinese corporates as they have Libor-based floating rate external debt
  • USD/CNY has over 90% correlation with 3-month USD Libor in the past three years
    • Rising USD Libor could lead to further depreciation pressure on yuan
  • Room for RRR and interest rate cuts are limited in China, as yuan is under pressure
    • That adds to liquidity risk in domestic bond market; recent bond market retracement hasn’t bottom
  • NOTE: 3-month USD Libor rose to 0.83344% on Friday, highest since May 2009
  • NOTE: USD/CNY trades -0.06% at 6.6800; pair closed at 6.6838 yday, highest since July 19
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Ming Ming (CITIC Securities Co Ltd)

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