China

Widespread concern over China’s currency strategy put the brakes on European banks’ use of the dollar market this week, which began with a $7.5bn raid on the currency by four borrowers.

China’s devaluation of its currency has halted private medium term note business in offshore renminbi after it led to a plunge in the renminbi/dollar swap rate. But when the basis swap stabilises issuance will return just as soon as investors readjust their yield targets, say MTN bankers.

With China’s devaluation having brought rising uncertainty across global markets, volatility measures for many options on exchange traded funds have not kept pace with those that reference their underlying securities.

Back in 2010, Brazil’s finance minister Guido Mantega warned that the world was in the midst of a “currency war” in the wake of US quantitative easing. The term is now back in vogue after China made the shock decision to devalue its currency.

The People’s Bank of China stunned financial markets this week when it weakened the onshore RMB (CNY) fixing by nearly 2% — the largest single day depreciation ever.

Opinion is divided about whether this week's unexpected move by the People’s Bank of China (PBoC) to devalue the renminbi marks a landmark for the country or reeks of desperation.

The People’s Bank of China (PBoC) said on Thursday that it would allow qualified foreign entities to participate in the onshore foreign exchange market in a move that is aimed at helping encourage the convergence of the onshore and offshore renminbi FX rates. The development came in an already turbulent week for the RMB, which has seen a big devaluation as the PBoC changes its approach.

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HSBC has slashed its forecast for volumes of offshore renminbi bonds and certificate of deposits for the year, as attractive costs of onshore funding steal the limelight from dim sum issuance.

The sharp fall in the renminbi is expected to take a huge toll on offshore bonds in the currency, shutting down the pipeline at least for the rest of the month. But more worrying are the potential longer term consequences if the downward pressure spreads to other Asian EM currencies.

Asia’s equity markets endured a vicious sell-off after China unveiled a shock devaluation of the RMB this week. But bankers and fund managers were nonplussed, with many calling the turmoil an over-reaction. As composure returns to the market, investors are keen to put the episode behind them.

Dongfeng Peugeot Citroën Auto Finance Co has increased the size of its latest loan to Rmb1bn ($158m) from a launch size of Rmb800m, after 14 lenders came in during general syndication. The borrower’s strong market position helped whip up interest, said bankers.