5pc profit awaits some iBond holders

PUBLISHED : Monday, 25 June, 2012, 12:00am
UPDATED : Monday, 25 June, 2012, 12:00am


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Retail investors can expect to reap a quick profit of about 5 per cent, or HK$500 per HK$10,000 of investment, on the second batch of inflation-linked bonds issued by the Hong Kong government.

Due to start trading today, the second HK$10 billion offering of iBonds by the Hong Kong Monetary Authority has attracted bids of up to HK$105.20 per HK$100 bond in the grey market, according to Phillip Securities, one of the major dealers for cash and margin subscriptions of new securities.

More than 330,000 people have put in a total of HK$50.2 billion in subscription requests for the bonds. Since the allocation policy ensured that every subscriber could buy at least one HK$10,000 lot of the bonds, those who ordered more than one lot were allocated only up to four lots.

The three-year bonds pay interest twice a year at a floating rate linked to the Hong Kong consumer price index. But investors will be paid a minimum coupon interest of one per cent even if inflation is less than 1 per cent or negative.

Headline inflation was 4.7 per cent in April.

Analysts said the grey market price, giving local investors a virtually riskless profit of around five per cent, was not surprising. This is because the bonds were priced at par value. Normally, bonds are issued at a premium to their face value.

'This is a bit like a subsidy from the government, although unlike the HK$6,000 scheme, not every Hong Kong citizen can enjoy the benefit,' VC Brokerage director Louis Tse Ming-kwong said.

Tse also noted that buyers in the secondary market who had indicated they were willing to pay a 5 per cent premium on the bond's issue price were likely to be institutional investors who wanted to hedge risk of higher-than-expected inflation.

But he believed demand for the bonds at such a premium might not be high, given that recent economic indicators had pointed to easing inflation pressure.