The impact of the downgrade in the United States' national credit rating is shaking the Asian financial market. In particular, there are concerns in Hong Kong that pension funds may face restrictions on holding U.S. Government Bonds due to regulations.
On the 20th (local time), Bloomberg News reported, citing multiple sources, that the Hong Kong Investment Funds Association conveyed concerns to the Hong Kong government regarding the downgrade of the U.S. credit rating.
The Mandatory Provident Fund (MPF), Hong Kong's retirement pension system, is regulated so that the U.S. must receive the highest rating from a recognized credit rating agency in order to invest more than 10% of MPF assets in U.S. Government Bonds. This regulation is exceptionally stringent compared to other countries' pension funds.
Moody's downgraded the U.S. national credit rating from 'Aaa' to 'Aa1' on the 16th, raising the possibility that some operators may be forced to sell U.S. Government Bonds in accordance with the relevant regulations.
In response, the Investment Funds Association reportedly requested that the Hong Kong authorities allow exceptions for U.S. Government Bonds, even though the U.S. was downgraded by Moody's.
The MPF manages approximately 1.3 trillion Hong Kong dollars (about 230 trillion won) in funds, with a membership of 4.7 million. Among these, as of the end of last year, bonds and mixed assets eligible for investment in U.S. Government Bonds are estimated to be about 484 billion Hong Kong dollars (about 86 trillion won).
The Hong Kong authorities stated, "The U.S. is still maintaining the highest rating from one of the authorized credit rating agencies, so it is currently a subject of special treatment," adding, "We will continue to monitor market conditions and review appropriate measures to protect the interests of MPF members if necessary."
Meanwhile, with this adjustment, Moody's has become the last of the three major international credit rating agencies to withdraw the highest credit rating from the U.S. Previously, S&P downgraded the U.S. rating in 2011, and Fitch did so in 2023. Currently, only the Japanese R&I maintains the highest rating (AAA) for the U.S.
Kazuki Hara, Chief Analyst at R&I, noted, "We reaffirmed the U.S. AAA rating and stable outlook last February," stating, "Maintaining the current rating is our fundamental position."
Following Moody's adjustment, forecasts for a decline in the value of the dollar are also increasing. Bloomberg reported that the foreign exchange options market indicator, 'risk reversal,' suggests unprecedented dollar weakness.
Citigroup strategists suggested that currency exchange rates could be a major agenda item at the G7 finance ministers' meeting (20th to 22nd), and they expect that downward pressure on the dollar could further increase after the meeting. In particular, they analyzed that if the U.S. demands devaluation of counterpart currencies as a condition for tariff reduction, countries in East Asia, such as China and Japan, could be targeted.
They predicted that instead of a joint response to currency exchange rates like the 1985 'Plaza Accord,' comments emphasizing the role of central banks by U.S. Treasury Secretary Janet Yellen are more likely. In fact, Secretary Yellen has a currency meeting scheduled with Japanese Finance Minister Katsunobu Kato during this G7 meeting.
Pressure for rising interest rates is also being detected in the Government Bonds market. Bloomberg reported that according to options market analysis, the yield on 10-year U.S. Government Bonds is likely to rise from the current 4.48% to 5%.