Analysis Hong Kong’s 2017 bond issuances may extend last year’s bull run

Three weeks into the new year, and Hong Kong’s bond market has already seen HK$11.4 billion worth of bonds being issued, signalling a strong start to 2017.

It’s no wonder that Hong Kong, one of the world’s leading financial centres, and its bond markets enjoy a number of advantages. The city is already well-known for its open markets and abundant onshore liquidity. In addition, it’s one of the few Asian markets to have a triple-A credit rating, and coupled with the Hong Kong dollar’s peg to the US dollar, HKD-denominated bonds are considered an attractive investment opportunity.

Hong Kong’s primary bond market had a good run last year, with HKD-denominated bonds recording HK$74 billion in issuance, a robust growth of 46 per cent over 2015, according to Dealogic’s data.

This particularly stands out against the backdrop of relatively slower global issuances, up only by 6 per cent, highlighting Hong Kong – and to an extent, Asia’s – resilience amid the market volatility at the start of 2016.

The HKD bond market is largely skewed towards issuances from the government and public segments, which account for 61 per cent of the outstanding volumes in 2015.

However, the corporate bond segment has also become increasingly prominent in recent years. In fact, prior to the financial crisis, the outstanding amount of corporate bonds grew at a compounded annual growth rate of 5 per cent, broadly in line with Hong Kong’s gross domestic product. Post-crisis, this has accelerated to 17 per cent, far outpacing economic growth.