RMB Photo:VCG

The issuance of 5 billion yuan ($786.1 million) worth of central bank bills in Hong Kong on Tuesday was 4.4 times oversubscribed, official data showed, in a fresh sign of continued interest in yuan-denominated assets despite multiple uncertainties.

The People's Bank of China (PBC), the country's central bank, auctioned the six-month bills at an interest rate of 2.6 percent, read a statement on the PBC's website on Tuesday.

The auction was greatly appealing to overseas investors including banks and funds from the US, Europe and Asia, and international financial organizations, with more than 22 billion yuan in total bids, or roughly 4.4 times the planned issue, according to the central bank.

This indicates the allure of yuan-denominated assets and global investors' confidence in the Chinese economy, the PBC said, adding that the issuance of the central bank bills in Hong Kong on a regular basis enriches the portfolio of yuan-denominated investment products and the toolbox of liquidity management in the Hong Kong market, and also fosters the issue of yuan-denominated bonds by domestic financial institutions and firms in the offshore market.

The Tuesday auction followed the issuance of 25 billion yuan worth of PBC bills, with maturities of three months and one year, in Hong Kong in February, which resulted in a 2.4 times oversubscription.

The Tuesday issue took global investors' fancy amid the yuan's somewhat rocky ride, notably in the offshore market.

The offshore yuan weakened to 6.41 against the US dollar intraday on March 15, before trending stronger later and hovering around 6.37. The onshore yuan traded around 6.36 versus the dollar.

A weaker yuan over a matter of days since March 11 gave way to a course reversal in the wake of a key financial meeting in Beijing on March 16.

The optimism-reviving meeting was seen effectively reversing a slide that initially gripped US-traded Chinese stocks amid the US' regulatory toughening before the contagion spread to shares on the Chinese mainland and Hong Kong bourses. 

In technical terms, the yuan's overall stability signifies the PBC's strong-mindedness despite swings on the offshore market, Tan Yaling, head of the China Forex Investment Research Institute, told the Global Times on Tuesday.

The central bank set the yuan's daily fixing at 6.38 against the dollar on March 16, according to official data, even though the Chinese currency underwent big fluctuations in the offshore market during the prior day.

Looking ahead, the US Federal Reserve's cycle of rate hikes is unlikely to have a material impact on yuan moves, Tan noted, citing different policy orientations between China and the US.

US Federal Reserve chairman Jerome Powell said on Monday that the US central bank is ready to raise interest rates more aggressively, if needed, indicating a rate hike of more than 25 basis points at a meeting or meetings.

Last Wednesday, the Fed announced a quarter-point increase in the fed funds rate, the first interest rate hike since December 2018, as the battle against surging inflation in the US apparently tops the Fed's priority. 

With the consumer price index coming in at merely 0.9 percent in February, China's central bank appears to be prioritizing stability in economic growth.

Still, the Russia-Ukraine conflict, among other uncertainties, weighs on an almost one-way bet on yuan strength, according to Tan, putting the yuan's exchange rate against the dollar at around 6.6 by year-end.