The Hong Kong Monetary Authority (HKMA) has launched an interbank reference rate for the offshore yuan (CNH) market, a long-awaited move that aims to help create more hedging options for those investing or trading in the Chinese currency.
The move to create a CNH Hang Seng Interbank Offered Rate (HIBOR) fixing responds to concern about a lack of hedging options that have restrained enthusiasm for holding the yuan, which Beijing wishes to encourage traders and investors to do.
The yuan-denominated debt or so-called ‘dim sum’ bond market has grown rapidly in recent months in response to growing demand from investors seeking yuan assets. Market players have resorted to using imperfect derivatives to hedge their interest rate risk such as non-deliverable forwards (NDFs) and currency swaps.
Peter Pang, the HKMA’s deputy chief executive officer, said that the CNH HIBOR launch “will support the growth of the renminbi (RMB) market by providing a benchmark for loan facilities.
“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.”
Following earlier announcement on 25 April about the planned launch of CNH HIBOR fixing, the Hong Kong Monetary Authority (HKMA) has selected sixteen banks for contribution of interest rate quotes based on their activity levels in Hong Kong’s offshore RMB market, and the TMA has appointed these banks as Contributing Banks for a term of one year. Thomson Reuters has been designated as the Calculating Agent for the computation and dissemination of the CNH HIBOR fixing.
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 Contributing Banks. The TMA’s fixing of CNH HIBOR will be subject to a governance and surveillance framework endorsed by the HKMA. The HKMA will also oversee the Contributing Banks’ internal systems for ensuring the integrity of the quote submissions.
“The CNH HIBOR fixing will be a significant piece of financial infrastructure for the offshore RMB market. Its launch will support the growth of the RMB market by providing a benchmark for loan facilities. 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,” said Peter Pang, Chairman of the Executive Board of the TMA and Deputy Chief Executive of the Hong Kong Monetary Authority.
The CNH HIBOR fixing will be published on the TMA’s website at 11:15a.m Hong Kong time every business day from Monday to Friday.
The fixing as well as Contributing Banks’ individual rate submissions will be published at the same time on the Thomson Reuters instrument codes listed on index page <CNHHIBORFIX>. Upon the launch of the CNH HIBOR fixing, the TMA will cease to display the individual CNH interbank offered rates currently being provided by 13 banks for publication on the TMA’s website.