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The article informs that Hong Kong's debt markets have never been stronger. The value of new is sues has risen from HK$9.4 billion (US$1.2 billion) in 1992 to HK$46.1 billion in 1995, nearly a five-fold increase. Nothing, not even politics, seems to slow the growth, in the first 22 weeks of 1996, bonds worth HK$21.6 billion were issued. Next, the market will see a new instrument, mortgage-backed securities, and the emergence of a potentially large source of funds, government-mandated compulsory pension funds. The growth comes just over one year before the territory returns to Chinese sovereignty. Yet the markets are showing a confidence in both the currency and the political situation. Many investors are more comfortable with the political situation in Hong Kong than a few years ago. There is a well-established yield curve for Hong Kong-dollar paper maturing after the handover in 1997. The views expressed by the market participants have been backed by their actions. During the first five months of 1996, banks in the territory have issued a record number of FRCDs (floating-rate certificates of deposits) valued at HK$15.5 billion. Demand for the paper has been equally intense, with some investors unable to get sufficient top-name issuers. Fixed-rate investors, on the other hand do need liquidity to take advantage of a positive yield curve. But the Hong Kong market lacks the liquidity needed for an active secondary market. INSET: Setting the limits..

Booming demand for Asian currency private paper has led to a dramatic year-on-year rise in MTN volumes denominated in Hong Kong dollars and offshore renminbi. [ABSTRACT FROM AUTHOR]

The article presents the expectations of analysts in Hong Kong, China, on the territory's economic prospects. The outlook is currently mixed, with the consensus view that the U.S. economy will maintain its poor performance, which in turn will affect the Hong Kong economy. Observers generally believe there will be more interest rate cuts by the U.S. Federal Reserve. The Hong Kong dollar is connected to the U.S. dollar and the interest rate policies of the two currencies tend to move in the same direction. With the U.S. Federal Reserve fund target rate predicted to decline to 5 percent this year, it is forecasted that Hong Kong's deflation will become a mild inflation.