With the Yuan at its weakest against the Dollar since May 2008, it's becoming harder and harder (and more and more expensive) for China to hide/defend its devaluation strategy (CNH down over 13% since the 'one-off' Aug 2015 devaluation).
And in its latest effort to rig the currency's value, it currently costs more to borrow yuan overnight in Hong Kong than it does to borrow it for a year.
As The Wall Street Journal reports,
"It’s not normal for this to be taking place,” said Mitul Kotecha, head of Asia foreign-exchange and rates strategy at Barclays in Singapore.
China has been trying to promote greater global use of the yuan, but this year, after sharp falls in the value of yuan prompted speculators to bet against it offshore, and Chinese to send increasing amounts of money overseas, officials have stepped in to control things.
Recently, China’s foreign-exchange regulator has instructed banks to limit how much money companies move out of the country, making it more difficult for big companies to send large amounts of yuan or dollars overseas. Traders say that has crimped the amount of yuan in Hong Kong, the main pool of the currency outside of mainland China, pushing up short-term rates. Borrowing costs have also ticked higher in anticipation of stricter capital controls.
Simply put, the rate spikes and contorted yield curves are symptoms of a dysfunctional, manipulated market.
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