A short borrowing rate alone cannot establish the return from financing a longer bond. A treasury desk considering the three-year HKD government bond reopening has a funding reference: one-month HIBOR fixed at 2.74 percent on October 15, according to our money panel (the borrowing rate comes with rather less commitment than the bond).

So the purchase decision starts with the price the desk is willing to pay. That price determines the bond’s yield. Comparing it with one-month funding gives an initial spread, with the cost of subsequent borrowing still unsettled. A positive opening spread can disappear when funding resets.

The ten-year reopening announced alongside it extends that mismatch. Both tenders take place on October 21. Choosing the longer bond means accepting more sensitivity to changes in yields, as well as more time during which short borrowing costs can change.

For the treasury desk, 2.74 percent is a starting input. The October 21 tender price will establish the yield available on the three-year purchase, and therefore how much room that purchase leaves for funding costs to rise.