BY Reuters
HONG KONG, May 6 (Reuters) – Hong Kong’s de-facto central bank has been reducing duration in its holdings of U.S. treasuries US10YT=RR, its chief executive said on Tuesday, diversifying into other currencies and assets as volatility grows in dollar bonds.
The Hong Kong dollar has rallied alongside other Asian currencies recently, testing the strong end of its peg to the U.S. dollar, as investors sought out home currencies after President Donald Trump’s tariffs triggered recession fears, roiled financial markets and dented the U.S. dollar’s credibility.
“We’ve been reducing duration in our U.S. Treasury holdings,” Eddie Yue, the chief of the Hong Kong Monetary Authority, said at the Finance Committee meeting of the Legislative Council on Tuesday.
“During recent market volatility, you can see that longer-duration bonds were more impacted than shorter-duration ones,” he said.
“For the rest of our investment portfolio, we’ve been diversifying into different currencies and asset classes.”
Typically, reducing the duration of a bond portfolio could involve selling bonds with longer maturities and buying shorter-term ones to reduce risks.
Yue attributed the recent U.S. bond turbulence to factors such as U.S. tariff policies, investors’ diversification needs and technical reasons.
“For the past few years, we’ve been reducing duration to position more defensively.”
Hong Kong’s Exchange Fund, which supports the Asian financial hub’s dollar, had 79.1% of its assets in dollars by December 31, 2024, the HKMA’s latest annual report shows, its lowest level since 2014.
The diversification efforts also come as the Hong Kong dollar strengthens against its U.S. counterpart, to which it is pegged in a tight band of 7.75 to 7.85.
The currency has touched the strong end of the band four times this month, triggering intervention from the HKMA.
Capital inflows from mainland China investors, robust IPO activity and strong equity markets are driving demand for the Hong Kong dollar, Yue said, adding that the upcoming corporate dividend season from May to July could add further upward pressure.
Despite the diversification drive, the U.S. dollar remains central to global finance, and the HKMA said it will maintain ample dollar reserves in the Exchange Fund to back the currency peg.—Reuters
