HKD: Further HKD Buys May be Forthcoming to Boost Local Rates
Jun-26 07:44
- Just ahead of the APAC open Thursday, HKMA confirmed they intervened on the weak side of the band, buying HKD 9.42bln (~ $1.2bln) to defend the trading band - the first intervention on this side of the band since early 2023, but follows action on the strong-side just 8 weeks ago. We see this as the shortest gap on record between intervention on each side of the band in it's current form.
- The intervention settles on Friday, meaning Hong Kong's aggregate balance should shrink by ~HKD10bln to ~HKD 164bln.
- Today's ~$1.2bln sale is minor relative to the bank's intervention on the strong-side this year, which amounted to over $15bln - but the bank's staggered approach to intervention may mean we see further USD/HKD selling and further volatility in local rates before spot moves materially away from 7.85.
- HIBOR set higher in response to the intervention: 1m fixed at 0.96554% for a 7-week high, however HKD swap rates remain supressed, and no relief here could pressure HKMA to act again. This was noted by the bank's statement that they will "continue to closely monitor market developments". Through the last phase of intervention on the weak side in 2023, HKMA intervened on 8 occasions, buying a total of HKD 55bln. In 2022 interventions totalled HKD 242bln, across 41 occasions.
- Despite HKMA's actions today, carry remains key. USD/HKD differentials remain attractive even with today's move - and sharper intervention, twinned with a building 2025 IPO pipeline, improved corporate activity via bond sales and dividends may be required to alleviate excess liquidity, and reverse the pressure on local rates this year.
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BONDS: The Tnotes/Bund spread finds some resistance
May-27 07:36
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| Meeting Date | ESTR ECB-Dated OIS (%) | Difference Vs. Current Effective ESTR Rate (bp) |
| Jun-25 | 1.922 | -24.6 |
| Jul-25 | 1.838 | -33.0 |
| Sep-25 | 1.706 | -46.2 |
| Oct-25 | 1.653 | -51.5 |
| Dec-25 | 1.577 | -59.1 |
| Feb-26 | 1.556 | -61.2 |
| Mar-26 | 1.547 | -62.2 |
| Apr-26 | 1.554 | -61.4 |
| Source: MNI/Bloomberg. | ||
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