The trade of last week, which unsettled world stock market last week, to sell offshore Yuan and Buy onshore Yuan ended in a rush today. First sign was already visible in Monday's trading, when cost to borrow or short Yuan reached 13.4% for overnight from just 45 on Friday.

Yesterday, we covered on this suggesting after pushing greater devaluation of onshore Yuan on Thursday, PBoC might be draining Yuan liquidity from Hong Kong market via state run banks to reign over offshore-onshore spread, which moved higher than 2% last week.

End of that trade has been dramatic than ever. Yuan Hibor (Hong Kong interbank offered rate) touched 66.8% today as can be seen from the chart obtained from Financial Times as traders rushed for exit.

While PBoC doesn't control the offshore Yuan market, however recent day moves show it is not out of tools, when things go out of hand. Keeping the spread is vital for PBoC, since -

• It is an indication of stability. Two far apart rates would lessen the relevance of onshore Yuan, and PBoC's objective of greater acceptance of Yuan.

This two week would be a lesson for traders betting on opposite direction to PBoC. Though we expect, depreciation pressure on Yuan to remain, traders would recognize the mantra "Don't fight PBoC" for the time being.

Onshore market is currently trading at 6.585 per Dollar.