Hong Kong launches reference rate for offshore yuan market

HONG KONG, June 24 Mon Jun 24, 2013 2:13am EDT

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HONG KONG, June 24 (Reuters) - The Hong Kong Monetary Authority launched an interbank reference rate for the offshore yuan market on Monday, a long-awaited move that will makes it easy to create more hedging options for those investing or trading in the Chinese currency.

The move to create a CNH HIBOR fixing will help address a widespread concern about a lack of hedging options that have restrained enthusiasm for holding the yuan, which Beijing is trying to encourage.

Even as the yuan-denominated debt or "dim sum" bond market has grown rapidly in recent months in response to growing demand from investors hungry for yuan assets, market players have had to resort to using imperfect derivatives to hedge their interest rate risk such as non-deliverable forwards and currency swaps.

For each of the eight tenors covered, namely overnight, one week, two weeks, one month, two months, three months, six months and twelve months, the fixing will be calculated by averaging the middle quotes after excluding the highest three quotes and lowest three quotes provided by the banks.

Some of the contributing banks out of a total 16 are: Agricultural Bank of China Limited, Bank of China (Hong Kong) Limited and Bank of Communications Co,. Ltd.

For a full list, see: here

"Its launch (CNH HIBOR) will support the growth of the RMB market by providing a benchmark for loan facilities," Peter Pang, deputy chief executive of the Hong Kong Monetary Authority said in a statement.

"The fixing will also facilitate the development of a variety of RMB interest rate products, increasing the ability with which market participants can manage the interest rate risk of their RMB businesses," he said.

The CNH HIBOR fixing supplied by the banks reflected an inverted money market curve, signaling extremely tight cash conditions in the very short end, a fallout of the fund shortage in the mainland.

For example, one-week CNH HIBOR was fixed at 6.36250 percent while one-year CNH HIBOR rates was fixed at 3.4850 percent.

The fixing will be published on the Treasury Market Association's website at 11:15 a.m. Hong Kong time (0315 GMT) every business day from Monday to Friday.

Thomson Reuters is the official calculating agent for this industry interest rate benchmark and the fixing. Contributing banks' individual rate submissions will be published at the same time on the Thomson Reuters instrument codes listed on index page (Reporting by Saikat Chatterjee; Editing by Kim Coghill)

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