HALISTER1: Pay HKD 5-Year Swap as Hibor-Libor Gap to Narrow: Morgan Stanley

Pay HKD 5-Year Swap as Hibor-Libor Gap to Narrow: Morgan Stanley

(Bloomberg) -- The Hibor-Libor spread is now at its widest since 2009, and isn’t sustainable given the Hong Kong dollar peg to the greenback, according to Morgan Stanley
  • Either Hibor would gain or USD/HKD might rise towards top of the band, MS strategist Kritika Kashyap wrote in note yday
  • Given the “punitive negative carry” in paying front-end HKD rates, recommend a paid position in 5y HKD swaps
    • Pay HKD 5-yr IRS; enter 1.25%, targets 1.6%, stop 1.1%
  • Key risk is that onshore liquidity continues to ease, leading to a further decline in Hibor
  • NOTE: HKD 5-yr swap falls 2 bps today to 1.23%
    • One-week HKD Hibor little changed at 0.12446% yday, USD/HKD little changed at 7.7580 per dollar
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Kritika Kashyap (Morgan Stanley)

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