HIBORs have retreated from the 4.20% levels in late February to the 3.80% levels of late, amid the release of liquidity from a gigantic IPO. Short-end rates will likely recede further on entering April as the quarter-end effect fades. That said, the downside will be limited in our view. The equity market performance will be the main driver. The average daily turnover of the Hang Seng Index has jumped by 84% to HK$243bn in Jan-Mar 2025 from HK$132bn in the 2024 average. Should the improving China's M2 growth continue to fuel the Hang Seng Index performance (in particular tech stocks), the demand for HKD will render support to HIBORs in the medium-term. Note that total net inflow through Southbound Stock Connect YTD has already reached 53% of the 2024 level at HK$427bn. The buoyant stock market will also entice IPO listings and thereby tighten the liquidity condition further. For government bonds, the spread between the HKMA 2Y EFN and 2Y UST will likely narrow on stronger fiscal spending. The public debt as a percentage of GDP is expected to increase from 9% to 16% in the next three years. The government may also raise the bond yield to attract investors given the negative spread against UST. 
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