Understanding Hong Kong’s Exchange Fund Bills & Notes — Liquidity Flow Analysis

Introduction

This page compiles the expected liquidity flows between Hong Kong Monetary Authority’s (HKMA) Exchange Fund Bills and Notes (EFBNs) and the Aggregate Balance. The data aims to give readers a sense of how much of the outstanding EFBNs are maturing each month, and how much the HKMA plans to issue in new securities to absorb the resulting liquidity flowing back into the banking system.

Estimates of these liquidity flows can provide a lens into the HKMA’s liquidity management practices. The Net Injection or Absorption figures shown below should also carry some predictive power over the “Interest Payment/Issuance of Exchange Fund Bills and Notes” line item shown in the HKMA’s Daily Monetary Statistics on the corresponding date.

The data in this page are updated monthly.

What Are Exchange Fund Bills & Notes (EFBNs)?

Exchange Fund Bills and Notes are debt securities issued by the Hong Kong Monetary Authority (HKMA) to manage liquidity in Hong Kong’s banking system. It is a key tool for controlling how much cash is available in the banking system.

Exchange Fund Bills (EFBs):

• Short-term securities (91 days, 182 days, or 364 days)
• Sold at a discount to face value (the difference is the yield)
• No interest payments

Exchange Fund Notes (EFNs):

• Longer-term securities (2, 5, 10, or 15 years)
• Pay semi-annual interest (coupon payments)
• Return principal at maturity

Why Do EFBNs Liquidity Flow Matters?

Every EFBN transaction affects the Aggregate Balance – the total amount of money in Hong Kong banks’ clearing accounts with the HKMA. This is essentially the banking system’s interest paying “liquidity pool.”

The Cash Flow Mechanics:

When EFBNs are issued:

• Banks buy securities from HKMA
• Money flows OUT of the Aggregate Balance
• Result: Less liquidity in the banking system

When EFBNs mature or pay coupons:

• HKMA pays banks back (principal + interest)
• Money flows INTO the Aggregate Balance
• Result: More liquidity in the banking system

The HKMA’s Quarterly Tentative Schedule

The Scheduled Issuance figures in this table come from the quarterly tentative issuance schedule published by the HKMA at the start of each quarter. This schedule outlines the planned face value of Exchange Fund Bills to be issued on each upcoming tender date, giving banks and market participants advance visibility into the HKMA’s liquidity management intentions. However, as the name suggests, the schedule is tentative — the HKMA usually adjusts issuance amounts based on prevailing market conditions.

Bills Are Issued at a Discount — and That Difference Matters

When the HKMA issues Exchange Fund Bills, banks do not pay the full face value upfront. Instead, bills are sold at a discounted price — known as the settlement amount — which is slightly less than the face value. The difference represents the interest earned by the banks over the life of the bill. When the bill matures, the HKMA returns the full face value.

This discount mechanism means the Scheduled Issuance and Confirmed Issuance figures in the table will almost never be identical. The quarterly tentative schedule published by HKMA states the face value of bills planned for each issuance date. However, the actual amount collected at the tender — the Confirmed Issuance — reflects the discounted settlement price determined by prevailing market interest rates on that day. When rates are higher, the discount is larger, and the settlement amount collected will be noticeably lower than the scheduled face value. When rates fall, the gap narrows. This is why comparing Scheduled and Confirmed Issuance figures reveals how market conditions shifted between when the schedule was published and when the actual tender took place.

Understanding the Net Flows:

Net flow measures whether EFBN activity is injecting or absorbing liquidity from Hong Kong’s banking system on a given day:

Net Flow = Maturities − Issuances

A positive result means more cash is being returned to banks than collected — a liquidity injection that increases the Aggregate Balance; A negative figure means more is being collected than returned — an absorption that reduces it.

This table presents two versions of this calculation.

• The Estimated Net is calculated using the HKMA’s scheduled face value figures and serves as a forward-looking indicator before tender results are available.
• The Confirmed Net uses the actual settlement amount collected at tender, making it a more precise backward-looking measure once a tender has taken place. Because bills are issued at a discount, these two figures will generally differ even when the HKMA rolls over the full scheduled amount.

About This Data

This table is updated regularly using official HKMA data sources:

• Daily tender results announcements
• Tentative issuance schedules
• Historical liquidity statistics

The data helps track Hong Kong’s monetary operations and their real-time impact on banking system liquidity.