Hong Kong funding squeeze dulls dollar carry trade as Hibor climbs

Seasonal cash demand in Hong Kong is pushing up interbank funding costs, reducing the appeal of borrowing Hong Kong dollars to buy higher-yielding US dollar assets. The one-month Hibor hit its highest level since January this week and stood near 2.68% on Wednesday, with DBS Bank estimating it could rise to 3% to 4% in coming months. Demand has been driven by midyear dividend payments and banks’ regulatory needs. As the rate gap with the US narrows, some carry trades may be unwound, easing short-term pressure on the Hong Kong dollar. The Hong Kong Monetary Authority also extended HK$920 million in discount-window lending on Tuesday, its biggest overnight support for banks in nearly four months.