In a sign of just how distressed the Chinese market has become, traders are more bearish on the yuan than they are on the currency of Argentina, a country which suffers from a bond default, a stagnant economy and the second-highest inflation in the world.
Costs to protect against further declines in the yuan, as measured by one-month implied yields on so-called non-deliverable forwards, rose as high as 18 percent on an annualized basis on Monday, up from 2 percent at the end of July. That was the second-most expensive hedge among 31 major currencies tracked by Bloomberg after the Peruvian sol, surpassing those of the Argentine peso, Brazilian real and the Russian ruble.
Once an anchor of stability in the global economy, China shocked investors with the biggest devaluation in two decades this month after loosening control over the yuan in the currency market. While the People’s Bank of China said the adjustment aims to move towards a market-determined exchange-rate regime, it raised concerns that the economy is weakening so much that policy makers are willing to let the currency fall to spur export-led growth.