Hong Kong Exchange Operator Posts Record Quarter on Strong Trading, IPO Activity
Hong Kong Exchanges & Clearing's net profit and revenue hit new quarterly records as trading and listing activity in the Asian financial hub gained momentum, spurred by the volatility in markets and a fundraising boom.
The stock-exchange operator said Wednesday that net profit jumped 37% from a year earlier to 4.08 billion Hong Kong dollars, equivalent to US$525.9 million.
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There was a selloff in the bond market as well, signalling that buyers were losing confidence in the U.S. as a safe place to store their money. The 10-year Treasury yield spiked from less than four per cent on April 4 to 4.5 per cent on April 8, while the 30-year yield topped five per cent. 'People are worried the independence of the Fed could be eroded to some extent, people are worried that the U.S. administration's policies have not been friendly to the allies or to the providers of capital for the U.S. market,' said Jason Daw, the head of North American rates strategy at Royal Bank of Canada (RBC) Capital Markets. 'This has led the market to believe that (foreign) investors are going to be investing less in the U.S and maybe more in their domestic markets.' And with the U.S.'s massive debt, investors question the government's fiscal prudence, weakening demand for U.S. bonds. Trump's 'big, beautiful' tax bill lead to the second big spike in yields this year. Introduced in May, the bill included extended tax cuts and an increase to the national debt ceiling, and would add nearly US$4 trillion to America's US$36 trillion in debt if passed. In the immediate aftermath of the tax bill announcement on May 22, the 10-year yield closed at 4.58 per cent, its highest level since 2023. To make matters worse, credit rating agency Moody's Corp. downgraded America's credit rating due to the country's inability to manage its ballooning debt. Following that up, there was tepid demand at a US$16 billion 20-year Treasury bond auction, another key indicator of the bond market's woes, pushing yields to 5.1 per cent. 'When the government goes to borrow, they auction up the bonds, and get the money from the Treasury,' Gomez said. 'If there are fewer buyers, then that price is going to come down, and the yields will need to go up on those bonds to make them sellable.' When people talk about trouble in the bond market, they often talk about yields spiking. The yield on a bond is how much you would expect to earn on your money per year if you held the bond through to maturity, including both interest payments and price return. While the interest payment on a bond is usually fixed, yields adjust to prevailing expectations about where interest rates are heading. For example, if investors think they will be able to buy a new bond at an interest rate of five per cent, they aren't likely to want an existing bond with an interest rate of only four per cent. So the price of that older bond falls. The big thing to remember is that yields and prices are inversely related: If yields go up or spike, it means the value of the bonds people are holding goes down. 'Similar to how the value of a stock or the equity market could change, the value of bonds changes depending on people's expectations of future interest rates and depending on when you purchase the bond (which could be) at a value that is above or below its maturity level,' said Daw. If bond buyers are concerned that the U.S. fiscal position is deteriorating, they are likely going to want a higher return to offset the risk of lending to Uncle Sam. So, yields go up, and prices go down. Bond yields have been rising across the globe — a striking reversal in a long-term trend of declining yields that persisted over the past 20 to 30 years thanks to modest inflation and economic stability. With inflation higher post-COVID and due to economic jitters from the U.S.-initiated trade war, there is less demand for especially long-term government bonds globally, making it more expensive for governments to borrow. If the U.S. has trouble selling its bonds at rates that allow it to service its debt, it could be forced to raise interest rates to higher and higher levels to placate investors seeking compensation for taking on the greater risk. Increasing interest rates could create a vicious cycle of higher rates making it more expensive for the government to service its debt, leading to bigger deficits and more debt, producing greater risk that buyers will want to be compensated for with higher interest rates. Most importantly, the U.S. relies on the sale of its Treasury bonds to fund its operations. If buyers don't want to buy bonds, the government could struggle to pay its bills, especially if there aren't sufficient tax revenues, Gomez said. 'Ultimately, it can lead to a financial crisis,' he said. 'It circles down across the whole financial system into the real economy.' Gomez pointed to Greece as an example. The country toppled into a government debt crisis in 2007, exacerbated by the global financial crisis, and struggled to recover. Major financial rating agencies flagged Greek bonds with 'junk' status in 2010. The country's unemployment rate hit a record 28 per cent in 2014, and poverty and homelessness snowballed. 'This doesn't usually happen to a well-developed country like the United States, given its position in the world,' Gomez said, noting the Fed could step in and be 'the buyer of last resort.' Still, this could lead to major inflation risks caused by 'printing money' and potentially call into question America's long-term debt sustainability, which would result in higher interest rates over the long run, he said. Although Canada's bond market typically follows the same direction as its southern neighbour, Gomez said it has hit a resistance point due to the Bank of Canada cutting interest rates out of step with the U.S. Federal Reserve. Canadian bond yields are getting tugged upward, influenced by what is occurring in the U.S., but they are also being pulled down by the central bank. 'Everybody probably expected at the end of last year that we'd see lower interest rates, lower mortgages,' Gomez said. 'But what's really happening is that the bond market and bond yields in Canada are just going sideways.' If the Fed starts cutting rates more than the Bank of Canada, Daw said it is likely the Canadian bond market will underperform the U.S. Treasury market over the next six to 12 months. Canada's central bank is in a tight spot, as it weighs the upside risks to inflation against the downside risks to growth brought on by U.S. tariffs. The other factor weighing on Canadian market sentiment is the expectation that the federal government and provinces will be issuing plenty of bonds this year to increase spending to support the economy through the trade war. When the supply of bonds goes up, this puts downward pressure on bond prices and upward pressure on bond yields. Canada's debt position doesn't look as grim as the U.S., but it is growing. The U.S. debt to gross domestic product (GDP) ratio was 123 per cent in 2024, while Canada's amounted to 110.8 per cent — but Canada's debt to GDP ratio has been on an upward path since 2022 and is markedly higher than its pre-pandemic levels (where it hovered around the 90 per cent range). Why everyone is worried about the bond market — especially Donald Trump Bond market volatility spells trouble for investors Gomez predicted that the Canadian bond market will outperform the U.S. but added that inflation and global factors will still influence yields. 'The thing about the U.S. is that it is still the centre of the capital markets across the world,' said Gomez. 'So, what happens in the U.S. invariably starts impacting the rest of the world.' • Email: slouis@ Sign in to access your portfolio
