|19 June, 2019

China central bank to issue offshore bills to keep yuan stable

China and the United States are rekindling trade talks

Headquarters of the People's Bank of China (PBOC), the central bank, is pictured in Beijing, China September 28, 2018.

Headquarters of the People's Bank of China (PBOC), the central bank, is pictured in Beijing, China September 28, 2018.

REUTERS/Jason Lee

SHANGHAI - China's central bank said on Wednesday it will sell 30 billion yuan ($4.35 billion) worth of yuan-denominated bills in Hong Kong on June 26, a move that is expected to drain liquidity and support the currency ahead of the G20 summit.

The People's Bank of China (PBOC) said it will issue a 20 billion yuan one-month tranche and another six-month tranche worth 10 billion yuan next Wednesday, according to a statement published on its website.

China and the United States are rekindling trade talks, and top officials from both sides will meet at the G20 summit in Japan on June 28-29. The world's two largest economies have engaged in a months-long trade war that has shaken confidence in global markets and damaged economies.

Market analysts and traders believe the currency issue would be an important topic in the Sino-U.S. trade negotiations, and they expect the PBOC to keep the yuan stable ahead of a meeting between Presidents Donald Trump and Xi Jinping.

An escalation in the trade dispute pushed the yuan sharply lower last month.

The auction, the fourth such sale of offshore yuan bills in Hong Kong in seven months, will be an "off-cycle" issuance as there are no bonds due to expire this month.

The volume and tenors are different from previous sales, which all totaled 20 billion yuan with 10 billion yuan each in three-month and one-year notes.

Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong said the latest changes to the PBOC's offshore bills auction was a warning against yuan short-sellers.

"The volume expanded slightly, suggesting that the PBOC warned against the short-sellers that the authorities have such a tool to pressure them," Cheung said.

"And the new one-month tenor would also drain short-term liquidity, which should be associated with keeping the spot yuan stable ahead of the G20 meeting," he added.

($1 = 6.9002 Chinese yuan)

(Reporting by Beijing Monitoring Desk and Winni Zhou; Editing by Shri Navaratnam & Kim Coghill) ((winni.zhou@thomsonreuters.com; +86 21 2083 0100; Reuters Messaging: winni.zhou.thomsonreuters.com@reuters.net))

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