Yuan Derivatives Trade Dries Up as Drop Swells Hedging Costs
- Currency swap costs above bond yield discourages foreign flows
- Yuan interest-rate derivative trading falls 30% vs 2013: BIS
Rising Swap Costs Deter Yuan Hedging
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Hedging against further declines in Asia’s worst-performing currency has become so expensive that some global investors are throwing in the towel on yuan bonds.
The cost of swapping dollars for China’s currency has risen above the yields on onshore sovereign notes as depreciation extends into a third year. Daily trading in yuan derivatives, which accounts for more than 40 percent of the total for the currency, slumped 30 percent from three years earlier, data from the Bank for International Settlements show.