Reuters: US Dollar Report: CNH Tracker-Onshore fund squeeze could rattle "dim sum" bond cart

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CNH Tracker-Onshore fund squeeze could rattle "dim sum" bond cart Jun 20th 2013, 07:27 Tweet Share this Email Print Related Topics Stocks » Currencies » Bonds News » Bonds » Markets » Mutual Fund Center » ETFs News » Financials » Thu Jun 20, 2013 3:27am EDT By Saikat Chatterjee HONG KONG, June 20 (Reuters) - Ripples from a worsening cash squeeze in China's interbank money markets are reaching the offshore yuan market and threaten to derail a recent surge of bond sales as investors shun debt. From January through May, average monthly sales of offshore yuan bonds or dim sum debt were nearly 20 billion yuan ($3.26 billion). The pace dropped sharply in the first 20 days of June, with sales of few than 7 billion yuan in bonds. Unless the pace picks up, June will have the smallest sales since last August, according to Thomson Reuters data. Market participants expect conditions to deteriorate further in the offshore yuan market before they get better. An onshore fund shortage has caused bond auctions to fail and sent interbank money rates spiraling up as smaller banks have been forced to hunt for scarce funds. A combination of seasonal factors such as banks' end-of-quarter reporting and a crackdown on hot money inflows by China's forex regulator in recent weeks have been cited as factors. Traders expect tight liquidity to last another few weeks but to improve significantly from mid-July, after the seasonal effects of the quarter-end fade and a large volume of maturing PBOC bills and government bonds injects cash into the market. "It is going to be a painful few weeks for the offshore yuan market. In addition to the fund squeeze, the global environment for fixed-income assets has also worsened noticeably in the past few weeks," said a fund manager at an investment house in Hong Kong. An HSBC index for measuring the performance of Asian local currency bonds has dropped by 5 percent from a record peak in early May. The cash squeeze has sent interbank rates in the Hong Kong market spiraling up to near record highs above 4 percent from less than a percentage point a month ago. As most banks and funds rely on the overnight money market to fund their investments in CNH paper, analysts expect yields on secondary market debt to start rising to reflect the higher costs.As Asian local currency bonds have been dragged into a spreading emerging market selloff in recent weeks, even CNH debt hasn't been spared. An index for measuring CNH bond performance has declined since a peak in early May. But given the relative illiquidity of the market, it has fared better than a regional index for these bonds. RECENT STORIES: CNH Tracker-New jumbo bond sale lined up for stormy market:Yuan trade eclipses HK dollars for 1st time Taiwan to take steps to lure yuan deals More stories about the CNH market Daily onshore yuan reports Daily China money market reports Offshore yuan rate Onshore yuan rate Offshore yuan dealt Onshore yuan on CFETS THOMSON REUTERS SPEED GUIDES Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (0) Be the first to comment on reuters.com. Add yours using the box above.

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