Front-end CNH rates edged up in June

This was more than what was anticipated.

Front-end CNH rates climbed further in June as expected, as the overnight CNH HIBOR fixing touched 4 percent twice, while 1-3M rates from from 2.5 percent at the end of May to 3-3.2 percent as of July 2.

According to a research note from HSBC, this was difference from last June's spike, which was caused by an onshore interbank crunch.

The report noted that this time, it was the result of slowing new CNH generation as a result of a subdued currency performance, while overseas financing demand has been strong.

Here's more from HSBC:

Putting the numbers into perspective, net RMB outflows from the Mainland declined to RMB27bn in May from an average RMB121bn in 1Q 2014.

New RMB deposits in Taiwan fell to RMB6bn in May, down from an average RMB14bn since January 2013, while those of Hong Kong declined for the first time since July 2013.

We are not overly concerned on this because the offshore liquidity will likely return once the currency strengthens, as happened in late 2012.