China plans offshore bills sale, yuan jumps

China’s central bank said on Tuesday it will issue yuan-denominated  bills in Hong Kong in the near future, in a move analysts said was  designed to tighten offshore liquidity to stabilise the weakening  currency.

The announcement came after the People’s Bank of China  sold 20 billion yuan ($2.90 billion) of bills in Hong Kong last week.  The central bank had tapped the market every three months with the same  deal size and structure since November.

The expected “off-cycle”  issuance “is a clear indication that the PBOC wants to defend 7” per  dollar handle, said one Hong Kong-based trader with a global asset  manager.

The yuan has weakened almost 3 percent this month after the United  States hiked tariffs on Chinese goods. The central bank said last week  it will ensure that the currency does not breach the 7 per dollar level  in the immediate term.

By soaking up yuan funds in Hong Kong,  PBOC’s bills could increase interest rates in the offshore yuan market,  making it more expensive for speculators to bet on a weakening yuan.