Market Summary

Yield Movements

Between 31 August and 14 October, Hong Kong, China’s local currency (LCY) government bond yield curve shifted upward, with yields rising an average of 80 basis points (bps) across the curve. The negative spread between the 10-year and 2-year yields deepened from –19 bps on 31 August to –57 bps on 14 October. The movements of Hong Kong, China’s LCY bond yields during the review period tracked those of United States (US) Treasury yields, owing to the Hong Kong dollar’s peg to the US dollar. The relentless monetary policy tightening by the Federal Reserve and the consequent base rate adjustment by the Hong Kong Monetary Authority continued to create upward pressure on yields at the shorter-end of the government bond yield curves of the US and Hong Kong, China, respectively. The inverted yield curve in Hong Kong, China also reflected expectations of a prolonged economic downturn. Hong Kong, China has recorded 3 consecutive quarters of economic contractions in 2022.  

Size and Composition

Hong Kong, China’s LCY bond market reached a size of HKD2,748.2 billion (USD350.1 billion) at the end of September after rising 4.9% quarter-on-quarter (q-o-q) and 13.2% year-on-year in third quarter (Q3) of 2022. Growth accelerated from 2.9% q-o-q and 7.9% year-on-year in second the quarter of 2022 primarily due to faster expansions in both the government and corporate bond segments. Growth in government bonds outstanding more than doubled to 3.7% q-o-q in Q3 2022 from 1.5% q-o-q in the previous quarter. Meanwhile, the stock of outstanding corporate bonds rose 6.2% q-o-q in Q3 2022, up from 4.4% q-o-q in the previous quarter. Government bonds comprised 52.1% of Hong Kong, China’s LCY bond market, while corporate bonds represented the remaining 47.9% at the end of September.

Policy, Institutional and Regulatory Developments

On 30 September, the Hong Kong Monetary Authority announced the tentative issuance schedule for Hong Kong Special Administrative Region (HKSAR) bonds under the Institutional Bond Issuance Programme for the period between October 2022 and March 2023. The issuance schedule included planned issuances of bonds with tenors ranging from 1 year to 20 years. Of note are two planned switch tenders. The first such switch tender will involve the issuance of a 3-year HKSAR bond in exchange for the early redemption of a 15-year HKSAR bond with an original maturity of March 2032. The other switch tender will involve the issuance of a 3-year bond in exchange for the early redemption of a 15-year bond with an original maturity of March 2036.