Investors do not want to exit the yuan

After raising the key rate, the volume of transactions with yuan swaps on the Moscow Exchange increased sharply. For the third day in a row, it exceeds 400 billion rubles. This shows that the owners of the Chinese currency are not selling it, but are transferring positions, hedging risks amid increased volatility in the spot market. At the same time, in anticipation of new steps to support the foreign exchange market on the part of the authorities, interest in hedging the foreign exchange risk will remain.

For the third day in a row, trading volumes in one-day swaps in yuan exceed 400 billion rubles. According to the Moscow Exchange, on August 17 they amounted to 423.4 billion rubles, which is 3.5% higher than the previous day and almost twice the average result in July. There was no such excitement in other currencies. The volume of trades in the swap with the dollar fell by 15% compared to the average value of July, to 124 billion rubles. Demand for euro swaps grew, but only to 86 billion rubles.

Demand for the rollover of currency positions in yuan has grown since the beginning of the week against the backdrop of overcoming the dollar exchange rate of 100 rubles / $ and subsequent steps by the financial authorities to stabilize the situation.

Tuesday after the decision of the Central Bank raise the key rate by 350 basis points to 12%, the volume of swap transactions in Chinese currency amounted to almost 493 billion rubles, the highest result for the entire time of trading.

Pavel Vintin, Investment Banking and Capital Markets Director at Rosbank, points out that swap turnover increased in proportion to spot turnover caused by volatility after the announcement of the Central Bank’s decision. According to the Moscow Exchange, on Tuesday the volume of yuan trading amounted to 220 billion rubles, which is almost twice the average in July. In the following days, the volume of trading in Chinese currency decreased slightly, and on Thursday it amounted to 193 billion rubles.

The increase in trading volumes may indicate that more and more market participants want to hedge their currency risks, said Mikhail Vasilyev, chief analyst at Sovcombank. Due to the “toxicity” of the dollar and the euro, preference for such operations is given to the Chinese currency. “Many large banks and companies are under Western sanctions and therefore move away from using the currencies of unfriendly countries. In addition, the Central Bank is pursuing a policy of de-dollarization with a transition to settlements in rubles and currencies of friendly countries,” notes Mikhail Vasiliev.

At the same time, overnight swap rates have risen sharply in recent days. On Thursday, the indicative rate calculated by the Moscow Exchange reached 11%, which is close to the maximum since the beginning of last summer. Since the beginning of the week, the rate has increased by 250 bp. largely reflecting the increase in the key rate. At the same time, the spread of the swap yield to the key rate has widened to 80 bps in recent days. p., while since the beginning of August it was at the level of 50 bp. p. “If an investor or company needed yuan, it was easier to borrow them for the day with the option to buy them cheaper later. Even despite the growth of rates on overnight swaps, it is almost proportional to the increase in the size of the key rate,” says Vladimir Evstifeev, head of the analytical department of Zenit Bank.

Given the prevailing conditions on the foreign exchange market and if the authorities wish to stabilize the situation and return the dollar to a level well below 100 rubles/$, high activity in the swap with the yuan will continue. “Currency risks still remain, and instruments in yuan will continue to develop,” Mikhail Vasilyev notes. According to Vladimir Evstifeev, with the expected strengthening of capital controls, there may be another surge in trading volumes.

As the situation on the foreign exchange market stabilizes, the demand for hedging instruments will also decrease. Moreover, the decline in volumes may be more significant. “In the foreign exchange market, positions are accumulated gradually, and they are often closed abruptly, as this time. When the spot volatility falls, the swap naturally stabilizes as well,” notes Pavel Vintin.

Vitaly Gaidaev