The pressure is ratcheting up on yuan shorts again with key offshore borrowing costs rising to fresh five-year highs and expected to remain elevated at least through the end of the quarter.
The costs for Hong Kong banks to borrow the yuan from each other surged across the curve this week, with the rate on three-month contracts climbing to the most since 2018 on Tuesday. That means it’s getting more expensive for traders to borrow the Chinese currency in the overseas market and sell it against the dollar.
On Wednesday, the PBOC said it plans to issue more yuan-denominated bills than are maturing in Hong Kong next week, a move that will also pressure borrowing costs with liquidity already tight in the run up to quarter-end. That marks a second straight month that Beijing has raised its sales of yuan bills.
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