The yuan is Hong Kong's new darling as investors chase higher yields

HONG KONG/BEIJING (Aug 17): The big ball of money in Hong Kong is rolling to the yuan, and the local dollar is suffering.

After years of underperforming, the offshore yuan is near its highest level versus the city’s currency in more than 12 months. Yuan deposits in the former British colony have stabilized after halving in the past two years, while buying mainland bonds is more lucrative: benchmark 10-year China government debt yields more than twice as much as its counterpart in Hong Kong.

“The market is trying to look for opportunities for carry using yuan as the long currency because of its higher yield compared to Hong Kong dollar or US dollar products provided in the city,” said Iris Pang, an economist at ING Groep NV. If the yuan’s advance continues, there will be “a lot of such carry activities” across the border in the coming year, she said.

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