On August 11 2015, China announced a devaluation of the renminbi alongside a new methodology for generating its official daily USD/CNY fix. This special section traces our coverage across GlobalRMB and GlobalCapital during a momentous few days for global markets.
How It Happened
The People's Bank of China (PBoC) has changed its daily exchange rate fixing methodology to make it more related to market levels, in a move that analysts saw as helping the renminbi's case for inclusion in the International Monetary Fund's SDR basket.
There was widespread surprise among analysts on Tuesday at the People's Bank of China (PBoC) move not only to weaken the onshore RMB (CNY) fixing by nearly 2% overnight, but also introduce a new system to establish the daily central parity rate from August 11.
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.
What It Looked Like
Asia Market Reactions
It has been one year since China shocked the world with a new methodology for generating its official daily USD/CNY fix that caused a sharp fall in the currency. Market participants told GlobalRMB that the new regime has been a step up from the old system, but while more near-term reforms are unlikely, they are bracing for even more volatility.
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 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.
The renminbi could be set to fall another 6% before it finds a bottom, onshore China FX traders told GlobalRMB on Wednesday, after two days of the biggest devaluations in the currency for decades. The daily fix fell 1.86% on Tuesday and a further 1.62% on Wednesday, to 6.3306, but traders said that it could hit 6.70 before finding a bottom.
It has been a brave new world for the renminbi since the People's Bank of China (PBoC) shook global markets with its surprise devaluation just over a year ago. But while there are signs that things have moved in the right direction, it seems a little early to trumpet the move as a policy success.
Tuesday’s surprise decision by the People’s Bank of China to allow the renminbi to be more market-driven was an important and necessary step as the country attempts to move to a more open economy. The mistake has been to do it at a time when China is under stress from falling economic growth. But what the fallout has made abundantly clear is that the renminbi is already a global currency.
It wasn’t supposed to be like this. US rate rises were very much a question of when, not if. A third Greek bail-out was all but agreed.
China’s shock decision to devalue its currency this week threw up a raft of potential difficulties for a public sector bond market already fretting over other central banks’ actions.
The AT1 market has come of age. In just over two years there is no longer a need for arduous investor education and perfect markets to sell the riskiest bank debt on offer.
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.
BNP Paribas played it safe on Wednesday, printing its $1.5bn AT1 in US hours to avoid any potential fall-out from the China related sell-off.
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.
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.
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.
Since adjusting its currency fixing process on Tuesday, the People's Bank of China (PBoC) has overseen the biggest two-day depreciation in the yuan in more than two decades. HSBC has described the CNY swap market sell-off as counterintuitive — and sees current elevated rate levels as an opportunity, writes Maia Ririnui of Total Derivatives.
The CNY rates market slumped on Tuesday after the People's Bank of China (PBoC) dropped its currency fixing by a record 1.9% alongside announcing a new methodology for conducting its daily fix. USD/CNY was set at 6.2298, its lowest level in almost three years.
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Panda Bonds Top Arrangers
|Rank||Arranger||Share % by Volume|
|1||Bank of China (BOC)||28.15|
|3||China CITIC Bank Corp||9.93|
|4||China Merchants Bank Co||9.38|
|5||Industrial and Commercial Bank of China (ICBC)||7.73|
Bookrunners of Asia-Pac (ex-Japan) ECM
|Rank||Lead Manager||Amount $m||No of issues||Share %|
|2||China Securities Co Ltd||9,276.15||41||4.87%|
|3||China International Capital Corp Ltd||9,104.08||44||4.78%|
Bookrunners of Asia Pacific (ex-Japan) G3 DCM
|Rank||Lead Manager||Amount $m||No of issues||Share %|
|4||Bank of America Merrill Lynch||17,836.24||92||5.23%|
|5||Standard Chartered Bank||14,573.61||109||4.27%|
Asian polls & awards
Agus Martowardojo, Indonesia
Indrajit Coomaraswamy, Sri Lanka
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Arun Jaitley, India
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