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Further issue of 28-day Exchange Fund bills to be tendered
The Hong Kong Monetary Authority (HKMA) will tender another tap issue of 28-day Exchange Fund bills on Thursday (December 5) of up to $10 billion.
This follows HKMA's announcement on November 19 to tender two tap issues of 28-day Exchange Fund bills of $5 billion each on November 26 and December 3.
Under the Real Time Gross Settlement (RTGS) system, banks can make use of Exchange Fund bills and notes to obtain interest free liquidity by carrying out intraday repurchase (repo) transaction with HKMA.
"Despite the recent increase in the supply of short term Exchange Fund bills, there remains very strong demand from banks for additional supply of bills in preparation for the implementation of the RTGS system on December 9," said a HKMA spokesman.
The strong demand was evidenced by the continued widening of the spreads between the yields of the Exchange Fund bills and HIBOR.
After the tender of the first tap issue of $5 billion 28-day Bills on November 26, the spread continued to widen from 59 basis points to 76 basis points this (Friday) morning. At the same time, the spreads for the three-month bills has also widened from 74 basis points to 91 basis points whereas that for six-month Bills has widened from 81 basis points to 85 basis points.
The $10 billion bills may be rolled over once on maturity. With these three tap issues, the banking system will have an additional supply of short-term bills amounting to $20 billion in the initial weeks of the RTGS implementation.
"This would ensure adequate supply of intraday liquidity for banks to manage their payment flows effectively under the RTGS system," said the HKMA spokesman.
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