Nomura: Cutting Hong Kong rates receiver position to 4/5, remains bullish on a decline in short-end rates

What trading view did Nomura adjust?

Nomura lowered its conviction level on a one-year Hong Kong dollar interest-rate swap receiver position starting in March 2027 from 5/5 to 4/5, reducing the position from 100% of its target size to about two-thirds. Receiving fixed benefits from a decline in swap rates.
The swap rate was 3.90% when the report was published, and Nomura’s target for the end of November was 3.60%; the bank would reassess the position if the rate rose to 4.05%.

Hong Kong’s Hong Kong dollar loan-to-deposit ratio edged up in September from a record low of 69.3% to 70.3%. Nomura also cited Hong Kong Financial Secretary Paul Chan as saying that upcoming third-quarter GDP growth could exceed market forecasts and that the government could further raise its growth forecast.
In the US, the market-implied peak federal funds rate was 4.46%, 58 basis points above the level at the time. That was close to the further 50 basis points of hikes Nomura considered reasonable: 25 basis points from its US economics team’s rate-hike forecast and another 25 basis points as a risk premium.
The approaching US midterm elections and nonfarm payrolls data also prompted the bank to reduce its risk exposure. Seasonally, three-month Hong Kong dollar interbank rates have typically rebounded by about 10 basis points in November in recent years.

Nomura believes liquidity in Hong Kong’s banking system remains ample and that short-end swap rates price in too much potential tightening in Hong Kong dollar interbank rates. Loan growth outside the residential property market remains very weak; the bank believes that, as Hong Kong’s economy becomes more closely linked to the mainland, current interest rates may be too high to attract loan demand.
Even if the US dollar–Hong Kong dollar spot rate reaches 7.85, Nomura believes the market overestimates the potential squeeze on Hong Kong liquidity. This is a key judgment behind its decision to retain a relatively high conviction level.

Nomura noted that Hong Kong banks kept their prime rates unchanged after the Federal Reserve’s rate hike in September; increases in local banks’ Hong Kong dollar time-deposit rates in recent months have also been far smaller than those in market swap rates.
Sentiment in Hong Kong equities remains subdued, with no large IPOs immediately ahead; the one-month moving average of daily stock market turnover has fallen from more than 300 billion Hong Kong dollars in midyear to less than 200 billion Hong Kong dollars.