Hong Kong banks have begun placing small bets on the odds that interest rates are poised to rise faster than their customers are expecting.
First to make a move on this possibility was Standard Chartered Bank, which last week launched a 'callable certificate of deposit' (CCD) programme.
It is understood HSBC will be launching a rival CCD offering tomorrow. Packaged in denominations of HK$100,000, both are being marketed to retail investors.
The appeal of the Standard Chartered paper is a 4 per cent interest rate earned annually for the first two years of a four-year term, versus present bank interest rates ranging from below 0.25 per cent on savings deposits to about 2.5 per cent for two-year fixed-term deposits.
Standard Chartered retains the right to 'call' (pay back) the CCDs after two years, or hang on to them for two more years - in which case the interest rate will rise to 5 per cent.
The paper will be tradeable, with Standard Chartered undertaking to make a market in its CCDs - on which cashing-in the investment before maturity will depend on prevailing interest rates in the market.
