Hong Kong vs US 10-year yield gap: why it moves HIBOR, not the Hong Kong dollar

In most currencies, a wider interest rate gap with the US is one of the usual suspects when the exchange rate moves. Hong Kong is different by design: the exchange rate is held in a narrow band, so the gap has to show up somewhere else.

How far is Hong Kong’s 10-year below the US?

Hong Kong’s 10-year government bond yield averaged 3.49% in August 2026 and the US 10-year Treasury 4.68% (FRED GS10), a gap of −119 basis points. In September the gap was −128 (3.71% against 4.99%).

Hong Kong 10-year minus US 10-year, August 2026 monthly averages. USD/HKD averaged 7.8425 that month

On daily data the gap is similar: 4.045% for Hong Kong (ADB AsianBondsOnline, data: Bloomberg) against 5.28% for the US Treasury 10-year on 7 October 2026, about −124 basis points. The two daily figures come from different sources.

When was Hong Kong above or below the US?

Period	Months	Gap	Context
November 1996 to December 2003	86	Above the US every month, up to +469 bp (July 1998)	Asian financial crisis and peg defence
June 2004 to February 2020	189	Down to −168 bp (November 2008)	Long stretch below the US
May 2020 to November 2021	19	Down to −45 bp	Pandemic, both near record lows
February 2022 to August 2026	55	Down to −145 bp	US rate increases

Of 358 months with both series to August 2026, Hong Kong was below the US in 267. Since 2004 it has been above in only four months (May 2004, March and April 2020, December 2021). The long stretch above came at the start of the sample, from 1996 to 2003. The widest gaps were in 1998, when markets doubted the peg and demanded a premium to hold Hong Kong dollar bonds.

Does the gap explain the exchange rate?

No. Under the Linked Exchange Rate System the HKMA sells Hong Kong dollars at 7.75 and buys them at 7.85 per US dollar. Since the band was introduced in 2005, the monthly average has ranged only from 7.7497 (October 2009) to 7.8498 (October 2022).

Test (November 1996 to August 2026)	Result
Correlation of gap and USD/HKD level	−0.22
Same, from 2016	−0.16
Correlation of twelve-month changes	−0.04
Average USD/HKD when the gap was negative	7.7859
Average USD/HKD when the gap was zero or positive	7.7748

The difference in average exchange rates between the two states is 0.14%, smaller than the width of the band. Most positive-gap months also come from before 2005, when the band did not exist in its current form.

What does respond is Hong Kong’s own yields:

Correlation of monthly changes in Hong Kong's and the US 10-year yield, January 2016 to September 2026

Visual guide

Does the gap explain the exchange rate?

Since 2006

• 10-year yield, level0.96
• 10-year yield, monthly change0.80
• 10-year yield, twelve-month change0.92
• 2-year yield, monthly change0.79

00.96

Correlation with the US	Since 2006	Since 2016
10-year yield, level	0.96	0.96
10-year yield, monthly change	0.80	0.85
10-year yield, twelve-month change	0.92	0.93
2-year yield, monthly change	0.79	0.79

In other markets an exchange rate absorbs part of a US rate shock. In Hong Kong the yields absorb most of it.

How did the gap and HIBOR move in 2026?

Month	Hong Kong 10-year	US 10-year	Gap	1-month HIBOR	USD/HKD
December 2025	2.98%	4.14%	−116 bp	3.10%	7.7808
January 2026	3.16%	4.21%	−105 bp	2.78%	7.7965
March 2026	2.80%	4.25%	−145 bp	2.16%	7.8268
May 2026	3.09%	4.48%	−139 bp	2.60%	7.8329
July 2026	3.39%	4.60%	−121 bp	2.73%	7.8407
August 2026	3.49%	4.68%	−119 bp	2.67%	7.8425
September 2026	3.71%	4.99%	−128 bp	2.90%	not yet in our data

All figures are monthly averages; HIBOR is from the HKMA. Through 2026 the exchange rate drifted from about 7.78 towards the weak end while one-month HIBOR stayed between 2.2% and 2.9%, well under US short rates. Hong Kong’s 10-year rose 73 basis points from December to September; the US 10-year rose 85.

When does the gap start to matter?

The gap that moves money is at the short end. In early May 2025 the strong-side limit was triggered several times and HK$129.4 billion flowed in. According to the HKMA’s statement of 26 June 2025, the extra liquidity pushed interbank rates down, the wider Hong Kong dollar to US dollar rate gap “incentivised carry trade activities that sold HKD for USD”, and the weak-side limit of 7.85 was triggered. The HKMA bought HK$9.42 billion.

One-month HIBOR averaged 0.68% in June 2025 and 1.00% in July, against US short rates above 4%. USD/HKD averaged 7.8486 and 7.8496 in those months, at the edge of the band. Once the HKMA absorbed liquidity, HIBOR rose: 1.92% in August and 3.29% in September 2025.

So in Hong Kong, a wide gap is a signal to watch HIBOR, the aggregate balance and the 7.85 limit, not a forecast of where the exchange rate will go. The HKMA also named dividend season, IPO proceeds being converted and half-year funding needs as factors in the same episode.

The peg also means US dollar benchmarks translate into Hong Kong dollars with almost no exchange rate effect. To compare a Hong Kong dollar amount against local and US measures, open the past money calculator.

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