USD and HKD Rates: Safe-haven demand for USD and HIBOR volatility
Further downside for UST yields appears limited.
Group Research - Econs, Samuel Tse26 Jun 2026
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USTs have recently rallied due to safe-haven demand stemming from the global equity sell-off this week. Easing concern over the Fed’s independence under the New Fed Chair, Kevin Warsh, also drives stronger demand for US govvies and compresses the term premium. The 2Y and 10Y yields have fallen to 4.13% and 4.27% respectively, with the DXY hitting 101.5. However, further downside for UST yields appears limited, in our view. First, the UST auction results have not been constructive, especially against the backdrop of a still-hawkish Fed. The bid-to-cover ratio for 2Y bond sales has dropped from 3.49x to 2.99x, while that for 5Y bonds remains largely on par with the previous issuance at 2.35x. Likewise, demand for 4-week bills and 7Y bonds stays tepid.

Second, data prints released overnight indicate a firm US economy. Annualised first-quarter GDP is revised upward from 1.6% QoQ to 2.1%. May’s headline and core PCE inflation have increased by 0.4% and 0.3% MoM respectively, with services prices serving as the key drivers. Both personal income and spending are up by 0.7%, beating expectations. Compensation growth accelerates amidst a still-resilient labour market. A robust equity market is supporting consumption sentiment through positive wealth effect, and tax refunds are also fueling spending sentiment. Real personal spending thus heads higher after accounting for inflation. Any upswing in job openings and Non-Farm Payroll prints next week could re-engineer higher UST rates.



Dollar-pegged HKD rates could see tactical receive opportunities against USD rates. For now, front-end HKD rates are on their upward march. The negative 1Y HKD IRS – USD SOFR spread has already narrowed from -104bps in March to -58bps. Quarter-end settlement effects and the dividend payment season are translating into stronger demand for HKD and higher HIBORs. As seasonal factors fade in mid-July, negative HIBOR-SOFR spreads could once again widen. The weak Southbound flow also adds additional pressure on HIBORs and stresses the HKD.

HKD rates will likely stay volatile as we enter the third quarter. The concurrent narrowing HKD-USD spreads have yet to stall the USD/HKD from heading towards the weak side of the trading band. The strength of the USD and the subsequent pressure on Asian currencies are overriding the impact from higher HKD rates. As the spread is set to narrow on fading seasonal effects, the odds for potential HKMA intervention are stacking up at the margin, albeit remaining conditional on USD strength.



Samuel Tse 謝家曦

Rates Strategist - Asia 利率策略师 - 亚洲
samueltse@dbs.com

 

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