Hong Kong to issue inflation-linked retail bond with highest offering of HK$15 billion

6 Oct, 2020 10:59
source: Singularity Financial

Singularity Financial Hong Kong October 6, 2020 – Retail investors will be able to subscribe to the latest iteration of Hong Kong’s inflation-linked government debt, known as iBonds, beginning October 23, according to the Hong Kong Monetary Authority (HKMA).

The iBonds, the seventh series issued since 2011, will make an interest payment every six months based on the average rate of the consumer price index over that six-month period, with a guaranteed minimum payment of 2 per cent. That is double the minimum guaranteed rate for the last series of iBonds issued in 2016.

The iBond will have a tenor of three years. The issue size can be increased to as much as 15 billion Hong Kong dollars (about 1.94 billion U.S. dollars) in line with the market response. The subscription period will be between Oct. 23 and Nov. 5. The iBond will be issued on Nov. 16, and listed on the Stock Exchange of Hong Kong on Nov. 17 and can then be traded in the secondary market.

“The issuance is an initiative announced in the 2020-21 Budget to provide residents with a safe and stable investment alternative while further developing the local bond market,” Paul Chan, the financial secretary of the Hong Kong Special Administrative Region (HKSAR) government, said Monday.

Hong Kong identity card holders will be able to subscribe in HK$10,000 (US$1,290) increments at placing banks, securities brokers or the Hong Kong Securities Clearing Company beginning at 9am on October 23, according to the city’s de facto central bank.

“We believe the extremely low interest rate environment will stay on for a long time. We want to offer stable investment returns to investors and to attract them to the bond market,” Lau, who was speaking in Cantonese, said at a press conference on Monday. The latest batch of iBonds were unveiled on Sunday in a blog post by Financial Secretary Paul Chan Mo-po, and come as historically low interest rates globally have pushed savings rates lower.

“The iBond usually offered an interest rate higher than the minimum guarantee rate. Now the minimum guarantee has increased to 2 per cent, which will make it more attractive, as it is much higher than the bank saving rate,” said Tom Chan, chairman of the Hong Kong Institute of Securities Dealers.