$10b worth of iBonds on way this month

Business | Kevin Xu 15 Sep 2020

Despite the weak inflation and low interest rate environment amid the pandemic, Hong Kong is to launch HK$10 billion worth of inflation-linked retail bonds, known as iBonds, on September 29, and the SAR government does not rule out the possibility of adjusting the fixed minimum interest rate, local media reported.

The upcoming batch of the iBond is expected to carry a tenure of three years and pay interest to bondholders once every half-year, with a minimum denomination of HK$10,000 per lot, the report said.

The Hong Kong Monetary Authority said it is still preparing for the issuance of iBonds.

The government plans to issue iBonds and Silver Bonds totaling not less than HK$13 billion in the fiscal year, Financial Secretary Paul Chan said in the budget speech.

"I expect the global low interest rate environment to persist for a long time," Chan said in the speech.

In previous iBond issues, the bonds offer interest payments that are linked to inflation in Hong Kong, subject to a floor of 1 percent.

The floating interest rate once hit 6.08 percent per annum in the first batch of iBonds and had never fallen below 1 percent in the following eight years.

It has been almost four years since the government issued the last batch of iBonds in 2016.

From 2011 to 2016, a total of six batches of iBonds were issued.

Kenny Wen, wealth management strategist at Everbright Sun Hung Kai, believes the iBonds will be well received by investors.

"Even though the inflation may drop a little bit, at least there is guaranteed interest rate for the bondholders," he said, adding that the fixed minimum rate of 1 percent is still an acceptable level.

"No one will believe that the Hong Kong government will default, so the default risk is relatively limited, and compared with bonds of the same grade, actually the interest rate is still attractive," Wen said.

He said safety-seeking investors would regard iBonds as an investment instrument that hedges inflation and provides stable returns.

Hong Kong's overall consumer prices fell by 2.3 percent in July over the same month a year earlier, after an increase of 0.7 percent in June, said the Census and Statistics Department.

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