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Hong Kong’s inflation-indexed bonds off to a roaring start, as residents seek refuge in government-guaranteed investments

  • HSBC reports encouraging response on the first day of subscriptions
  • Bank of China (Hong Kong) reports 65 per cent jump when compared with first-day sales in 2016

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The iBonds offer Hongkongers some refuge in an environment of declining interest rates. Photo: Xiaomei Chen
Yujing Liu

The first sale in four years of Hong Kong’s inflation-linked bonds got off to an encouraging start on Friday, as investors sought refuge in government-guaranteed returns in an environment of declining interest rates.

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Investors shrugged off new risks surrounding the latest iteration of the so-called iBonds, including a decline in Hong Kong’s sovereign credit rating as a result of two years of the US-China trade war and months of anti-government protests last year.

The returns are especially attractive as central banks have flooded financial markets globally with an abundance of liquidity in response to the Covid-19 pandemic. The US Federal Reserve, for instance, signalled that it would keep interest rates at near-zero levels through at least 2023.
The iBonds offer superior returns when compared with bank deposits. While in the past, these bonds have paid out semi-annual interest or coupons at between 1.02 per cent and 6.08 per cent, higher than the 12-month deposit rate of around 0.15 per cent between 2011 and 2016, this round guarantees a 2 per cent annual return rate. The Hong Kong government could issue up to HK$15 billion worth of the bonds, exceeding the HK$10 billion worth issued on each of the past six occasions.

“If you are a lazy investor, earning a 2 per cent return with practically no risk from iBonds is certainly better than putting your money in bank deposits,” said Wallace Tin, a finance columnist. At the same time, iBonds usually recorded a small jump in prices on the first day they become tradeable at the stock exchange, making them a great opportunity to pocket some quick gains as well, he added.

Several banks and brokers reported an upbeat response. The value of subscriptions by customers at HSBC, the city’s biggest lender, exceeded the number recorded on the first day of sales during the last round of iBond sales in 2016, the bank said.

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“We have seen an encouraging response to the latest tranche of iBonds on the first subscription day,” a spokeswoman said in a statement.

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