News out of Hong Kong ICYMI.
Hong Kong pension fund managers have warned of potential forced selling of US Treasuries after Moody’s downgraded US debt, leaving only one remaining AAA rating from Japan’s R&I agency.
Under Hong Kong’s Mandatory Provident Fund (MPF) rules, funds can only allocate more than 10% to Treasuries if the US has a AAA or equivalent rating from an approved agency. The four approved agencies are: S&P, Moddy’s, Fitch, and Japan’s Rating & Investment Information (R&I). Only R&I has the US at AAA now.
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The HK Investment Funds Association has urged regulators to make an exception for US Treasuries rated just below AAA.
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As of end-2024, HK$484 billion in bond and mixed asset funds could be affected.
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The MPFA acknowledged the issue, confirming the US still qualifies under current rules, but said it will monitor developments and act if necessary.
Hong Kong funds are only one set of funds. If other jurisdictions should follow similar rules (they all do) then forced selling could occur. It won’t be just the US bond markets that is ht. That’s the worry and that’s (one of the reasons, a biggie) why the downgrade matters.
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Meanwhile, retail equity buyers are like ….
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