This undated photo shows the building of the Hong Kong Monetary Authority. (PHOTO / IC)
About HK$15 billion (US$1.93 billion) worth of Hong Kong’s inflation-linked government debt — also known collectively as iBonds — is set to be issued from June, up from that of HK$10 billion for the previous batch issued in October 2020, the Hong Kong Monetary Authority said on Wednesday.
The issue size could be increased to up to HK$20 billion depending on the response, the HKMA said at a news conference. Retail investors in the city will be able to subscribe to the iBonds from June 1-11, while the bonds will make their debut on Hong Kong’s stock market on June 24, it added.
The issue size could be increased to up to HK$20 billion depending on the response, the HKMA said at a news conference
Carrying a term of three years, the iBonds will make an interest payment to bondholders every six months based on the average rate of the consumer price index during the six-month period, subject to a minimum payment of 2 percent — the same as the last series of iBonds.
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"I believe the iBonds provide investors a safe and reliable option to protect their wealth,” said Clara Chan, executive director (monetary management) at HKMA, noting the bonds’ low interest, low inflation environment amid uncertainties induced by the pandemic, and the economic recovery. Chan also expected the issuance to promote the city’s bond market.
Chan suggested that the public focus not just on the fixed rate which leveled off at 2 percent. “The floating rate is also worth paying attention to, as it’s linked to the inflation rate, so if the inflation rate rises, subscribers will get a higher-than-2-percent payment,” she said.
HSBC also expects the payment to be above the fixed rate, said Wong Tsz-cheuk, HSBC global markets managing director and head of Greater China fixed income trading. The bank forecast the city’s inflation rate to peak at 4 percent in the third quarter before sliding to 2.3 percent in the fourth, driven by the economic recovery, amid a global economic comeback especially in the Chinese mainland and the United States driven by the mass vaccination programs.
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The issuance of the iBonds comes amid signs of inflation and relatively low deposit rates, said Ryan Lam Chun-wang, head of research at Shanghai Commercial Bank. He predicts a more enthusiastic reception for this batch of iBonds by the city’s investors compared to previous offerings, as the deposit rate, the demand deposit interest in particular, has not changed much in the past year and has remained low.
Lam said that amid the sluggish stock market, risk-averse investors would be more interested in conservative investment products such as deposits and high quality bonds. With their high interest rate, iBonds will be relatively more popular among retail investors, he added.