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

26-Oct-2020 Intellasia | South China Morning Post | 6:02 AM Print This Post

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.

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.

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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.

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

Bank of China (Hong Kong), meanwhile, reported a 65 per cent jump in the total value of subscriptions when compared with the first day of sales in 2016. Customers subscribed for HK$100,000 worth of the bonds on average, doubling the amount reported four years ago, it said. Most of its customers subscribed through its mobile app or through its online banking service.

“Under the low-interest rate environment, the guaranteed 2 per cent yield, as well as the semi-annual interest payment, is very attractive to investors who seek a stable return,” said Arnold Chow, deputy general manager of personal digital banking products at BOCHK.

ICBC (Asia) described sentiment as “enthusiastic”, and said its customers subscribed for HK$200,000 worth of the bonds on average, with the highest single subscription amounting to HK$5 million.

Lu International (Hong Kong), a subsidiary of Chinese wealth management services provider Lufax Holding, said the trading volume on its mobile app had quadrupled from Thursday, with iBond subscriptions accounting for 70 per cent of all product subscriptions on Friday. It, however, declined to disclose the amount of subscriptions.

“We received a positive response to iBond subscriptions today, in line with our expectations,” a Citibank spokeswoman said in a statement.

Hong Kong identity card holders can subscribe to the bonds in HK$10,000 lots during a 14-day period until November 5. They are available at 18 traditional lenders, brokers and virtual banks, which have all launched various promotions, including waivers on subscription fees and discounted interest rates for margin financing, to attract customers.

In May 2016, more than 500,000 investors subscribed for HK$22.5 billion worth of the bonds. In July 2015, nearly 600,000 people applied for HK$35.7 billion worth of the bonds.


Category: Hong Kong

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