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Hong Kong’s old playbook on inflation bonds encounters new risk factors. Should retail investors worry?

  • Several events surround Hong Kong’s impending sale of inflation-linked bonds, notably risks tied to the US presidential election
  • Alternative safe bets in time deposits, money-market instruments have failed to protect retail investors from erosion in purchasing power

Reading Time:4 minutes
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A poster of iBond promotion seen here in the Bank of China branch in Cental, Hong Kong when the bonds were sold in 2014. Photo: SCMP
Yujing Liu
Hong Kong’s plan to sell new inflation-linked bonds after a four-year hiatus is expected to attract the same strong response like in the previous six offerings. This time, the economic conditions and risks surrounding the impending sale are different and worth noting, analysts said.
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For one, the government is selling the retail notes at a time when its credit ratings have suffered through a bitter US-China trade war and anti-government protests over the past two years. For another, consumer prices have also declined in recent months as the economy slipped into its worst recession on record. What with the timing, right in the middle of the US presidential election, whose outcome may be “extremely contested” and roil markets.

All these are bringing up new challenges for mom-and-pop investors who are not accustomed to the “new normal” of super-easy monetary policy that has pushed many bond yields to below zero.

“The unprecedented volatility in global financial markets, with the US presidential election approaching, is likely to benefit the iBonds’ sales,” said Kenny Wen, wealth management strategist at Everbright Sun Hung Kai. “To most investors, it’s still a near-zero-risk investment.”

06:17

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The government will offer as much as HK$15 billion (US$1.9 billion) of so-called iBonds or linkers, which pay at least 2 per cent annual yield. The move will also allow the treasury to pull back about one-fifth of the HK$71 billion cash the government handed out to permanent residents under the July spending stimulus package.
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