New Silver Bonds guarantee 3.5pc interest

Business | Winnie Lee 12 Nov 2020

Hong Kong will issue a new batch of Silver Bonds in December aimed at senior residents aged 65 and above with a minimum interest rate of 3.5 percent per annum.

The target issuance size in the fifth batch has been raised from HK$3 billion to HK$10 billion, and may be further increased to a maximum of HK$15 billion, depending to market response.

Subscriptions to the three-year Silver Bond opens 9 am on December 1 and ends at 2 pm on December 11.

A maximum allocation amount of HK$1 million per investor will be imposed, meaning each investor will be allocated 100 units of the bond at most, to prevent an over-concentration of holding in retail bonds by a small number of investors.

Hong Kong residents who turn 65 on or before 2021, with a valid Hong Kong identity card, may subscribe through one of the 20 placing banks or the 20 designated securities brokers.

Hong Kong Monetary Authority senior executive director Edmond Lau said that according to data from the Census and Statistics Department, there are about 1.3 million to 1.4 million people aged 65 and above, and the need to lower the age limit will be actively examined in the future.

Interest on the bonds will be paid once every six months at a rate linked to inflation in Hong Kong, subject to a minimum rate of 3.5 percent per annum.

The bonds have a tenor of three years.

Bondholders may sell the bonds, which can't be traded in the secondary market, before maturity to the government at par together with accrued but unpaid interest.

Lau said the market expects bank interest rates to remain low for a long time and this, and in addition to high investment risks and volatility, and there won't be significant upward pressure on inflation the short term. In this scenario, the slightly higher guaranteed interest rate of the silver bonds increase their attractiveness.

HKMA officials pointed out the proportion of citizens who redeemed the first two batches of silver bonds early was 5 percent and 4.7 percent respectively, while only 1 percent of subscribers had redeemed the third and fourth batches early, indicating that people tend to hold them for the long term, which matches the policy goals.

Lau does not rule out the possibility that inflation will rise again once the pandemic eases. "However, we will not comment on the future of inflation or deflation, and emphasize that there is a minimum guaranteed interest rate for the bonds. Even if inflation declines, it will not affect the returns, which is attractive," he said.

The bond will be issued on December 22.

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