Market Summary

Yield Movements

Between 31 August and 15 October, Hong Kong, China’s local currency (LCY) government bond yield curve shifted upward as yields rose for all tenors. Excluding the 1-month tenor, yields for shorter-dated bonds (2 years or less) rose an average of 16 basis points (bps), while excluding the 3-year tenor, yields for longer-dated bonds (5 years or more) rose an average of 33 bps. The movements in Hong Kong, China’s bond yields closely track the movements of United States (US) Treasury yields as the Hong Kong dollar is pegged to the US dollar. 

Size and Composition

Hong Kong, China’s LCY bond market continued to expand through the third quarter of 2018 to reach a size of HKD1,955 billion (USD250 billion) at the end of September. Growth moderated to 1.4% quarter-on-quarter (q-o-q) from 2.1% q-o-q in the second quarter. Growth was driven by the rise in stock of corporate bonds. Year-on-year (y-o-y) growth was 3.6%, maintaining the previous quarter’s y-o-y growth and driven by expansion in both the government and corporate bond segments. 

Policy, Institutional and Regulatory Developments

In August, delivery-versus-payment settlement was fully implemented under the Bond Connect program. This mechanism allows for the payment and delivery of securities in real time, reduces settlement risks, and facilitates settlement efficiency, providing more convenience to international investors through Bond Connect.