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The HKD curve remains on a steepening trajectory alongside the broader global rates environment. The 10Y IRS rate has continued to climb toward its one-year high of 3.47% as of yesterday, while the 2Y IRS rate has risen at a comparatively more moderate pace. Meanwhile, front-end funding conditions have softened, with 1M HIBOR falling by 11bps this week to 2.49% amid soft demand for HKD assets. The Hang Seng Index has declined by 5% from its recent peak, while southbound inflows have also moderated. That said, HIBORs are expected to rebound in the coming weeks. Liquidity conditions are likely to tighten alongside half-year-end funding demand. Dividend payments by listed companies are also expected to place upward pressure on front-end funding costs.
Steepening is expected to return when such seasonal effect fades. Long-end rates continue to rise in tandem with higher global and US term premia. While Hong Kong’s fiscal position is improving on the back of stronger tax revenues, firmer growth momentum is also exerting upward pressure on long-end yields. In particular, export performance could strengthen further amid easing US–China trade tensions. Exports to the US had already surged by 47.5% YoY year-to-date as of March, even before the latest trade agreement. Domestic demand has also remained resilient. Detailed 1Q26 GDP data revealed strong investment activity, with machinery investment jumping by 35.8% YoY. Building and construction activity also rebounded by 4.5%, ending six consecutive quarters of contraction.
Looking ahead, both the government and quasi-public sector entities are expected to accelerate bond issuance to finance infrastructure development in the Northern Metropolis. We also expect Wonton bond issuance to gain traction. The still-negative HKD–USD spread continues to allow issuers to borrow at relatively lower funding costs with limited FX risk, particularly as USD rates continue to move higher in a sticky inflation environment.
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The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
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