Back to basis
The spread between US dollar and Hong Kong dollar cross-currency interest rate swaps - known as the basis spread - has turned negative. This has presented opportunities and challenges for corporates and financial firms. By William Rhode
Towards the end of last year, the global credit crisis had reached critical mass in the Hong Kong fixed-income markets. For the previous six years, the Hong Kong basis spread - the spread between US dollar and Hong Kong dollar cross-currency interest rate swaps - had been trading in positive territory, albeit limited at about +10 basis points (bp).
Between November and March, it fell 70bp to -60bp before recovering to -40bp as of mid-September. While that is not as dramatic as in South Korea
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