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Meltdown in bonds continues to exact heavy toll

Sean Kennedy

THE meltdown in bond prices this year continued to exact a toll on Hong Kong, where the Wardley Hong Kong Bond Index marked its first anniversary down nine percentage points on its starting level.

The index stood at $97.83 - it had a value of $100 when it was launched on December 1, 1993, the bank said.

But HSBC Markets said the latest figure included re-investment value of accrued interest and the fall was greater than the 2.17 per cent indicated by the November figure.

'The actual net fall of the component bonds' price is 900 basis points (nine percentage points],' a spokesman for HSBC Markets said.

'So basically the capital price of the component bonds fell by nine per cent through the year.' The decline was recorded as official interest rates in the United States and Hong Kong were increased by 0.75 percentage points, and the outlook for short-and medium-term rates remained negative.

'As the duration of the Hong Kong dollar fixed-income portfolio is shorter than that of US dollar denominations, the negative impact of the hikes in short-term rates is amplified,' it said.

The index fell 0.39 per cent in November, after a 0.41 per cent in October, and HSBC Markets said it was the third consecutive monthly fall.

One new issue was added to the index during November.

The index was composed of 39 issues, and carried a current market-weighted yield of 8.29 per cent, HSBC Markets said.

The age-weighted average maturity of the component bonds in the index was 3.81 years, down from 3.97 years 12 months ago.