HIBOR Outlook: 2026 – Easing with the Fed, Mild Seasonality, and Why It's Time to Pivot Your Cash Holdings

HIBOR Summer 2025 – The 10-Week Rollercoaster

• May–June: Massive plunge

  
  

  Strong HKD hit 7.75 → HKMA strong-side intervention sold HK$129.4 bn HKD.

  
  

  Aggregate balance exploded from HK$45 bn → HK$174 bn.

  
  
  
  

Result– Overnight HIBOR: 4.3% → 0.02–0.03%– 1-month HIBOR: 4.07% → 0.52% (lowest since 2022)Driver: Record IPO inflows + heavy Southbound Stock Connect capital.

• July: Remained ultra-low

  
  

  Excess liquidity persisted → 1-month HIBOR stayed 0.7–1.1%.

• August: Violent rebound

  
  

  Carry-trade unwind + HKD weakened to 7.85 → HKMA conducted 12 weak-side interventions, buying back ~HK$120 bn HKD.

  
  

  Aggregate balance collapsed to HK$53.7–57 bn (lowest since Nov 2008).

  
  
  
  

Result– Overnight HIBOR: 0.18% → 2.77%– 1-month HIBOR: → 2.6–2.9%– 3-month HIBOR: briefly topped 3%

Bottom lineJune–July liquidity flood crushed HIBOR to near-zero; August’s aggressive HKMA drainage pushed rates back toward US levels in just weeks — a textbook demonstration of the Linked Exchange Rate System at work.

Which rate is HIBOR most closely correlated with?

·         SOFR (Secured Overnight Financing Rate) is by far the strongest driver.

·         Based on CEIC Data research, Pearson correlation between 1-month HIBOR and SOFR in 2025: 0.95 

·         With Fed Funds Effective Rate: 0.92 

·         With HK Prime Rate: 0.85 

·         With CNH SHIBOR: only ~0.70

HIBOR Outlook:

2026 – Easing with the Fed, Mild Seasonality, and Why It's Time to Pivot Your Cash Holdings

·         HIBOR will trend lower in 2026, closely tracking US rates lower→ Fed expected to cut 50–100 bps by end-2026 (per Bloomberg consensus forecasts)→ HKMA Base Rate to fall from 4.25% toward 3.25–3.50% (HKMA follows mechanically)→ 1-month HIBOR forecast: 2.80% today → 1.90–2.40% by mid-2026

·         Summer 2025’s extreme swings are over — liquidity now normalised→ Aggregate balance stabilised at HK$50–80 bn after HKMA drained ~HK$120 bn in August (HKMA data, Reuters Aug 2025)→ HIBOR-SOFR gap narrowing; no repeat of the 370 bps spread seen in June 2025

·         Mild seasonality remains, but will not change the downtrend→ Typical Dec–Jan +20–60 bps year-end bump (CEIC historical data 2018–2025)→ June–July usually the yearly low → But, these moves are consistently overridden by Fed policy direction

·         Actionable conclusion for your liquidity→ HKD money-market funds and time deposits will deliver only 1.5–2.5% in 2026 — unattractive in real terms→ USD money-market funds (even after Fed cuts) still yield < 4% and lower through mid-2026→ Both HKD and USD pure cash/MMFs face continued yield compression

·         Recommended positioning→ Reduce HKD and USD MMF / cash holdings — diminishing return outlook→ Re-allocate into Sparc Mortgage Income Fund — currently yielding about 6.0% (as of Nov 2025), backed by a diversified pool of high-quality HK residential mortgages with strong protection via stringent risk management → Offers genuine income enhancement in a falling-rate environment while staying fully HKD-denominated and capital-stable