However, it is unusual for transactions at the 5 and 7 year end of the scale to exceed HK$20-50 million. Most market participants would take fright at being asked to quote for several billion dollars. This is because the longer maturity swaps are normally covered by a corresponding fixed rate obligation in US dollars (where fixed rate instruments for ten years are commonplace); the interest rate premium being calculated to cover the exchange risk. The swapping of such a substantial amount into a fixed rate would dramatically increase the level of exchange rate risk being carried by the institution offering the swap.
Securitised debt. There is undoubtedly an appetite among those institutions (pension funds, life insurance companies) underwriting long term, Hong Kong dollar denominated liabilities for a long-term Hong Kong dollar denominated fixed rate security. Most of the existing demand is satisfied by proxy US dollar instruments. Since there is no real Hong Kong dollar debt market, and in particular no benchmark long term Government bond, the total appetite can only be guessed at. The total amount of Hong Kong dollar ten year paper in issue is estimated to be only $100 million, and the cumulative total about $500 million. The total pension and life assurance assets in Hong Kong are estimated to be $80 billion. On the basis of what is known about the mix of assets regarded as suitable by pension fund managers in Hong Kong, it can be deduced that the total current demand for such an instrument might be 10% of the total, or $8 billion. Although this is equivalent to 40% of the total estimated liability for 50% commuted lump sums as at 1/7/92, it would be unwise to assume that all of that demand could be satisfied by paper from one issuer: fund managers are required to diversify their risks. The proposed legislation on compulsory retirement schemes is likely to increase substantially the demand for long