31 March 2016
The Hong Kong debt market in 2015
The international bond market faced a mixed environment in 2015. The Greek government debt crisis hampered the recovery progress in Europe and expansionary monetary policies were adopted in most of the developed countries with a view to stimulating the economy. Meanwhile, the US Federal Reserve finally raised the target range for the federal funds rate in December, signalling the start of US interest rate normalisation. In the Hong Kong dollar debt market, the total issuance volume of Hong Kong dollar debt instruments continued to grow to a record level. Further measures were implemented by the Hong Kong SAR Government to support the development of the local bond market under the Government Bond Programme, including the issuance of the second sukuk (Islamic bond) in June and the debut 15-year Government Bond in July.
Overview of the international bond market
Market expectations of interest rate normalisation in the US, coupled with divergent monetary policies in developed markets, had increased volatility in the international bond markets.
The European Central Bank adopted expansionary monetary policies in early 2015 through the expansion of its asset-purchase programme to stimulate economic recovery. However, the Greek government debt crisis triggered concerns over a possible Greek exit from the eurozone in early summer, leading to a slump in the bond market in eurozone. Although negotiations between the Greek government and the eurozone members were held in late June, the rejection of the bailout terms in a Greek referendum further affected market sentiment. The market gradually stabilised only after a new agreement was reached in July.
With the conclusion of the US Federal Reserve (Fed)’s asset-purchase programme in late 2014, expectations that the Fed would begin raising interest rates gathered pace. This was particularly so before the September and October Federal Open Market Committee (FOMC) meetings. The target range for the federal funds rate was finally increased by 25 basis points to 0.25%–0.5% at the December FOMC meeting. As the decision had been widely expected, it did not cause significant fluctuation to the market. The lift-off signified the beginning of the US interest rate normalisation. The market in general expected that the pace of future rate hikes would likely be gradual and depend on the pace of US economic recovery.
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