HKMA seeks longer maturities for bonds to curb speculators

The Hong Kong Monetary Authority has written to nine supranational institutions encouraging them to issue Hong Kong dollar bonds with longer maturities in a bid to curtail opportunities for speculative activity.

The HKMA last night said it was asking the institutions, which include such bodies as the World Bank and Asian Development Bank, to confine future issues of Hong Kong dollar bonds to maturities of three years or more so the currency swaps attached to such issues could not be used by speculators to accumulate Hong Kong dollars for selling.

HKMA chief executive Joseph Yam Chi-kwong yesterday told a Legislative Council financial services panel meeting that the Government noticed some speculators had accumulated up to HK$40 billion in this way since the beginning of the year.

That explained why the HKMA had, during the latest speculative attack on the currency, opted not to sharply increase short-term interest rates to increase the cost of borrowing.

Supranational bodies always swap the proceeds from their Hong Kong dollar debt issues into United States dollars for their own financing commitments.

Speculators might act as a swap counterparty if these swaps carried maturities short enough to fit into their manipulative action plans. The longer the maturity, the higher the cost of taking the swaps.