Hong Kong Just Sold Its First Bond Linked to an Alternative to Libor
(Bloomberg) -- Hong Kong sold its first note tied to an alternative of the London interbank offered rate, in the latest milestone in a global shift away from the discredited interest-rate benchmark.
The city tendered HK$1 billion ($128 million) of 1-year floating rate notes pegged to the Hong Kong dollar Overnight Index Average (Honia), according to a statement from Hong Kong Monetary Authority. Demand was strong, with orders received exceeding HK$6.4 billion.
Authorities around the world are phasing out Libor after it was tainted by a rigging scandal that emerged about a decade ago. The HKMA said earlier this week that Hong Kong’s banks have to renegotiate HK$1.6 trillion in contracts linked to Libor before the benchmark ceases as corporate customers have been slow in transitioning. Earlier this year, the monetary authority pushed back a target for banks to phase out certain products tied to Libor to the end of 2021.
Elsewhere in Asia, Singapore became one of the first countries globally to auction debt linked to a Libor alternative when its central bank sold notes with a spread over the compounded Singapore Overnight Rate Average last August.
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In Hong Kong’s note sale this week, the bid-to-cover ratio -- the proportion of notes applied for to those issued -- was 6.42. That compares with an average of 4 for all the 2-year notes sold under Hong Kong’s institutional bond issuance program and an average of 3 for the 3-year notes, according to Bloomberg-compiled data based on HKMA statistics.
The HKMA is adopting “a multiple-rate approach,” under which both the Hong Kong Interbank Offered Rate, or Hibor, and Honia are expected to co-exist, the monetary authority’s Deputy Chief Executive Edmond Lau said in a speech last month.
“We hope the proposed FRN issuance could encourage the private sector to consider issuing similar products in the future, and provide further impetus for the development of other Honia-linked instruments in Hong Kong,” he had said.
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