* 1m and 3m HIBOR at levels last seen during financial crisis
* Year-end liquidity shortage, expected Fed hike push up local rates
* Demand for HKD on the rise as local equities, yuan recover
By Noah Sin
HONG KONG, Dec 6 (Reuters) - Interbank rates in Hong Kong are nearing their highest levels since the financial crisis on expectations of further U.S. rate rises and surging demand for the territory’s currency.
The 3-month Hong Kong Interbank Offered Rate (HIBOR), at which local banks lend to each other, hit 2.23 percent on Thursday, its highest since September and close to late-2008 levels.
The rate has risen by a sharp 26 basis points since late November, in step with a recovery in the Hong Kong dollar and the city’s stock market.
The Hong Kong dollar, which is pegged to the U.S. dollar, often serves as a proxy for the Chinese yuan.
It has risen to the middle of its 7.75-7.85 band to the U.S. dollar steadily over the past four weeks from the weak end as the yuan rallied.
Its latest leg up came after U.S. President Donald Trump and his Chinese counterpart Xi Jinping agreed to a 90-day truce in their trade war this weekend while the two sides resumed negotiations.
European and U.S. hedge funds have been “expressing their negative views on the Chinese and Hong Kong economies slowing and the U.S.-China trade conflict through shorting the renminbi and the Hong Kong dollar,” said Louis Lu, a fund manager and head of quantitative and alternative investment at CSOP Asset Management in Hong Kong.
Lu said some of those short positions were built around risks that Hong Kong’s peg with the U.S. dollar would break, and those short positions were now being unwound.
Market expectations that the U.S. Federal Reserves will hike rates this month have also been a big reason for the spike in Hibor, said Linan Liu, a Hong Kong-based rates strategist at Deutsche Bank.
Hong Kong is heavily influenced by U.S. interest rate moves because its currency is pegged to the U.S. dollar. Hong Kong banks could follow the Fed in delivering another hike, should the U.S. rates go up this month.
Hibor saw a similar spike in September, when Hong Kong banks hiked their benchmark rates for the first time in 12 years .
Further rate rises would add pressure on Hong Kong’s property market, one of the most expensive in the world.
The Hong Kong stock market’s recent recovery has also heightened demand for the local currency.
The main Hang Seng index rallied 6 percent in November, ending a 6-month losing streak, after shedding over 10 percent in an October correction.
“There has been a lot of equity-related inflow. There has been a lot of demand for Hong Kong dollar assets, keeping the Hong Kong dollar well supported, but liquidity is tight,” said Liu.
A better-performing stock market will prompt more primary offerings, further pressuring liquidity, analysts at Nomura said in a note on Tuesday.
Interbank liquidity is generally tighter towards the year-end holiday season. But this winter, as interest rates are set to rise again in the U.S. and local demand for funding intensifies, the squeeze has come earlier and harder than usual.
One-month HIBOR was at 2.1 percent, levels last seen in September. (Editing by Vidya Ranganathan and Kim Coghill)