New iBond bonanza targets up to $20b

Top News | Victor Zhong 13 May 2021

The government will launch the eighth batch of inflation-linked retail bonds - also known as iBonds - according to the Hong Kong Monetary Authority.

The scale of the three-year iBonds is HK$15 billion, with a minimum interest rate of 2 percent, the authority said yesterday.

The government may increase the issuance size to a maximum of HK$20 billion depending on market conditions.

The iBond comes with a minimum investment of HK10,000 and distributes dividends once every six months. The subscription period will start at 9am on June 1 and end at 2pm on June 11.

Hong Kong residents may apply for the iBonds through a placing bank, securities brokers, or the Hong Kong Securities Clearing Company.

The iBonds will be issued on June 23 and listed on the stock exchange the following business day.

It can be traded in the secondary market afterward.

The iBonds are expected to be a capital guarantee and a reliable investment at the current stage, given the current low interest rate, followed by low inflation and uncertainties including the Covid-19 pandemic and economic recovery, said Clara Chan Ka-chai, executive director (monetary management) at HKMA.

She said the market is expecting inflation pressure in the future. To that end, investors could benefit from rising interest rates if inflation rises within three years, said Chan.

The current Hong Kong interbank offered rate, or Hibor, and time deposit interest rate is lower compared to when the prior batch of iBonds was issued last year, a representative of Bank of China (Hong Kong) said.

Despite the minimum rate remaining at 2 percent, the product is still attractive, said the bank.

Also, the Hongkong and Shanghai Banking Corp said it expects inflation to peak at around 4 percent in the third quarter due to the low base from last year.

The combined average inflation for the second and third quarters will be 2.8 percent before it is expected to retreat to 2.3 percent in the last quarter of the year, said the lender's representative.

He added that the interest of the iBonds is expected to be higher than the minimum rate.

This came as the market watchers expect this batch of iBonds to see an overwhelming response, as the interest rate is far higher than the existing Hong Kong dollar deposit interest rate of less than 0.5 percent.

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