Hong Kong Monetary Authority to streamline exchange-fund notes, start discount facility for bonds

By Jennifer Chiou

New York, Dec. 8 – The Hong Kong Monetary Authority announced the introduction of two measures to promote local Hong Kong dollar bond market development: streamlining the tenors of bonds issued under the exchange-fund bills and notes program and introducing a discount facility for government bonds.

According to a news release from the authority, issues of exchange-fund notes and government bonds will be streamlined to minimize overlap in longer tenors and establish a single benchmark yield curve.

Starting in January, the Hong Kong authority will stop new issues of the exchange-fund notes with tenors of three years or above, the release noted. It will issue additional bills to replace maturing exchange-fund notes of those tenors to maintain the overall size of exchange fund papers as required.

In addition, new issuance of two-year government bonds will cease and new issues of government bonds will be for tenors of three years or longer.

The Hong Kong authority said it will establish a discount facility for government bonds from Dec. 15 onwards to provide greater flexibility for banks to manage liquidity.

The facility will provide up to a total of HK$10 billion overnight liquidity against a sale and repurchase of government bonds, the release stated. The authority would obtain funding from the market to maintain the size of the aggregate balance as needed.

Outstanding exchange-fund note and government bonds stood at HK$752.3 billion and HK$96.5 billion, respectively, at the end of November.

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