Core Viewpoint - The report from Bank of America indicates that the 1-month HIBOR has significantly dropped from 4% to 0.58% in one month, raising questions about its potential recovery to 4% given the current SOFR remains at 4% [1][7]. HIBOR and SOFR Dynamics - The report emphasizes that the behavior of HIBOR and the willingness for HKD arbitrage transactions will differ from previous weak-side Currency Board (CU) cycles due to the current bearish USD environment and strong inflows into HKD driven by positive momentum in the Chinese stock market [1][4]. - Bank of America predicts that the 1-month HIBOR will peak at 2.60% in Q4 2025, which is lower than the nearly 3% implied yield for the same period [2][3]. HIBOR Forecasts - The revised forecasts for HIBOR and USD/HKD exchange rates are as follows: - Current: 1-month HIBOR at 0.59%, 3-month HIBOR at 1.32%, USD/HKD at 7.85 - Q3 2025: 1-month HIBOR at 1.00%, 3-month HIBOR at 1.50%, USD/HKD at 7.85 - Q4 2025: 1-month HIBOR at 2.60%, 3-month HIBOR at 2.70%, USD/HKD at 7.85 - Q1 2026: 1-month HIBOR at 2.60%, 3-month HIBOR at 2.80%, USD/HKD at 7.83 - Q2 2026: 1-month HIBOR at 2.60%, 3-month HIBOR at 2.80%, USD/HKD at 7.81 - Q3 2026: 1-month HIBOR at 2.60%, 3-month HIBOR at 2.80%, USD/HKD at 7.78 - Q4 2026: 1-month HIBOR at 2.40%, 3-month HIBOR at 2.60%, USD/HKD at 7.75 [3]. Market Conditions and Arbitrage - The report suggests that the current level of HIBOR is primarily driven by supply factors, particularly the aggregate balance, which has increased significantly from a recent low of 45 billion HKD to 171 billion HKD [16][19]. - The interest in USD arbitrage transactions is expected to remain low due to market expectations of two rate cuts by the Federal Reserve in 2025, which will hinder the demand for long USD/HKD positions [26][30]. Conclusion on HIBOR Trends - Bank of America concludes that the current weak-side CU cycle is likely to be shorter than previous cycles, lasting until Q3 2025, as the HIBOR-SOFR spread narrows and reduces the motivation for further HKD arbitrage transactions [30].