During this period, the Chinese yuan has depreciated quite rapidly. By the end of June, the offshore exchange rate of the yuan against the US dollar had fallen by 3,950 points in the second quarter of this year alone.
Many have noticed that the US dollar has not appreciated significantly during this time, so why has the yuan depreciated so much?
It turns out that some investors have identified an issue.
Data released by the central bank shows that the holdings of yuan-denominated bonds by foreign institutions have decreased from 3.4 trillion yuan at the end of last year to 3.19 trillion yuan by the end of May.
The foreign institutions' holdings of yuan bonds have been sold off by 210 billion yuan. Is this an indication that the yuan is being shorted?
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01
In fact, the topic of the yuan being shorted has always been around, but even if it is shorted, it should be on a small scale.
On the contrary, in the past two months, although we have seen significant fluctuations in the yuan's exchange rate, foreign institutions have actually been buying more as the value drops.
We can see this through data from the interbank bond market, where at least 80 of the top 100 global asset management institutions are purchasing yuan bonds through the Bond Connect program.
The Financial Secretary of Hong Kong also stated that the current average daily transaction volume has reached 46.3 billion yuan, which is 30 times higher compared to when the Bond Connect first started.If we only look at data from a specific time period, it's actually quite easy to make incorrect judgments.
For example, compared to the end of last year, foreign institutions have indeed reduced their bond holdings by 210 billion yuan, but it's hard to conclude that foreign capital is selling off based solely on this.
Because if we compare May to April, the holdings increased by 20 billion yuan, can we then conclude that foreign capital is adding positions?
We can look at a longer-term data set, such as the Bond Connect, which has grown from nothing to a current holding volume of 3.2 trillion yuan by foreign institutions. This at least indicates that over the past six years, foreign capital has been continuously increasing its holdings of RMB bonds.
Moreover, during the current period of RMB depreciation, foreign capital continues to buy, which in itself shows that foreign institutions have a very positive view of RMB assets.
02
Regarding the recent depreciation of the RMB, our country has not turned a blind eye.
At the central bank's second-quarter summary meeting, it was clearly proposed to prevent significant fluctuations in the RMB exchange rate.
Immediately after the central bank's statement, the continuous depreciation of the RMB stopped, and it has even risen slightly in the last two days.
On the other hand, several banks have also simultaneously reduced the interest rates on US dollar deposits, which previously reached as high as 5.5%, but have now been lowered to 2.8%.This is actually a significant signal being sent to the outside world, reminding everyone not to blindly exchange currency. Whether it's residents or businesses, they should not blindly hold too many US dollar assets just for the sake of earning interest.
It is very likely that after this move, the willingness of businesses to exchange currency will significantly increase.
03
Some people might also ask, it is true that foreign institutions have reduced their holdings of RMB bonds, doesn't this indicate capital outflow?
In the first five months of this year, the holdings of RMB bonds decreased by 210 billion, but at the same time, the net purchase of northbound funds reached 183.324 billion in the first half of the year.
There is a slight difference in the statistical time because the holdings of RMB bonds have not yet announced the data at the end of June, but the two data are not much different. This actually confirms one of my previous inferences, that foreign institutions selling RMB bonds have not flowed out of the Chinese market, but instead bought stocks.
04
Of course, this does not mean that foreign capital is not interested in RMB bonds. On the contrary, they have always maintained a high interest in RMB bonds. It was also mentioned earlier that among the top 100 asset management institutions, as many as 80 institutions are buying.
The global economy is currently weak, and overseas capital has a demand for risk aversion in RMB bonds.
Moreover, due to the high risk of US bonds, the process of de-dollarization in various countries is still accelerating, so there are also a lot of funds transferring from US bonds to emerging markets, some of which have flowed into the RMB bond market.In this scenario, Yellen rushed to China, only to likely end up disappointed.
For us, buying an additional $10 billion or $100 billion in U.S. Treasury bonds doesn't make much of a difference, after all, we have such a large amount of foreign exchange reserves. But for the United States, it's still a drop in the ocean, as the U.S. has issued a staggering $32 trillion in national debt.
So, in the monetary financial war between China and the United States, who will have the last laugh? The answer is on the tip of one's tongue.