Market Summary

Yield Movements

Between 28 February and 15 May, the local currency (LCY) government bond yield curve in Hong Kong, China shifted upward, with yields rising for all tenors except the 1-month tenor, which fell 5 basis points (bps). On average, yields soared 96 bps across the curve. The spread between the 2-year and 10-year bond yields narrowed to 51 bps on 15 May from 85 bps on 28 February. The rise in yields of Hong Kong, China’s LCY bonds broadly tracked the jump in United States (US) Treasury yields during the review period as the Hong Kong dollar is pegged to the US dollar. The rise in US Treasury yields was largely driven by elevated inflation and the ensuing aggressive monetary policy tightening by the Federal Reserve. 

Size and Composition

Hong Kong, China’s LCY bond market reached a size of HKD2,546.2 (USD325.1 billion) at the end of March. Overall growth dropped to 0.8% quarter-on-quarter in the first quarter (Q1) of 2022 from 4.0% quarter-on-quarter in the fourth quarter (Q4) of 2021 due primarily to a contraction in the corporate bond segment. On a year-on-year basis, Hong Kong, China’s LCY bond market expanded 4.1% in Q1 2022, down from 5.0% in Q4 2021. Government bonds comprised 53.4% of Hong Kong, China’s LCY bond market at the end of March, up from 52.2% at the end of December.  

Policy, Institutional and Regulatory Developments

On 5 May, the Hong Kong Monetary Authority (HKMA) held the countercyclical capital buffer ratio (CCyB) steady at 1.0%. The HKMA noted that the economic data as of Q4 2021 signaled a CCyB of 1.0%. Furthermore, economic activities slowed in Q1 2022 and uncertainties regarding global and domestic conditions heightened. Thus, the HKMA decided to keep the CCyB unchanged at 1.0% and will continue to closely monitor developments.