Hong Kong will issue up to HK$15 billion ($1.94 billion) in inflation-linked retail bonds with a minimum rate of return reaching 2%, city authorities said Monday - in the third bond of its kind that has contributed more than HK$60 billion to government coffers since 2011.
With an issue of HK$10 billion, Hong Kong financial authorities will consider increasing the issuance up to HK$15 billion depending on demand for the three-year tenor bonds.
"The issuance is an initiative announced in the 2020-21 budget to provide residents with a safe and stable investment alternative while further developing the local bond market," Hong Kong Financial Secretary Paul Chan said at a Monday news conference.
The bonds are informally known as 'iBonds' because their issuance typically precedes a period of inflation. Unlike past years though, the minimum interest rate has been doubled from 1%.
"This will not only benefit the development of the retail bond market, but also offers an investment option that can earn stable returns while guaranteeing capital," said Chan on his weekly Sunday blog in reference to the increased rate of return.
The number of iBond subscribers has grown more than threefold since it first launched in 2011 to hit more than 500,000 subscribers in the bond's 2016 issuance, and this number is likely to rise further.
Low risk offerings with a guaranteed minimum 2% rate of return are few and far between, a factor that the government is hoping will entice investors to buy.
"[The minimum rate] is undoubtedly attractive in the current ultralow interest environment," Chan said. "If inflation heats up, returns will be linked to the increase in the consumer price index."
Subscriptions start Oct. 23. The bond will be issued Nov. 16 and listed on the HKEX the following day.
In addition to the launch of new retail iBonds and "Silver Bonds" for senior residents, a new three year and a reopened five year institutional bond will be issued by the government in October and November, respectively.