Hong Kong 5-Year Bond Yield

The Hong Kong Monetary Authority on the 17th raised its policy base rate by 0.25% to 4.25%, following the US Federal Reserve's rate hike. The HKMA said the widening interest rate gap between Hong Kong and the United States could spur carry trades and push the Hong Kong dollar toward the weak end of its trading band. The Hong Kong dollar fell to 7.8456 per US dollar in afternoon trading, hitting a one-month low. The currency is pegged to the US dollar in a narrow range of 7.75 to 7.85, and has been gradually drifting toward the weak end of that band in recent weeks. Chief Executive Eddie Yue told reporters that the interest rate gap between the Hong Kong dollar and the US dollar has widened, and carry trades could weaken the Hong Kong dollar toward the weak side of its permitted trading range. Samuel Tse, an interest rate strategist at DBS, said in a report that he does not expect HKMA intervention, and noted that a weaker US dollar on fiscal concerns, as well as the government's new five-year plan aimed at supporting the economy, are expected to underpin the Hong Kong dollar.