Executive director Norman Chan Tak-lam believed holders of time deposits would be likely buyers of the bonds, which offer higher returns.

Rates for bank savings have fallen to 0.001 per cent, giving depositors just $10 a year in interest income for every $1 million held, Mr Chan noted.

'The HKMC retail bonds offer an attractive vehicle for retail investors looking for yield enhancement as well as portfolio diversification,' he said.

The bonds come in three denominations: the three-year bonds have a coupon yield of 2.25 per cent; three-year bonds extendable for two years have a coupon yield of 3.1 per cent; while the seven-year note has a 4 per cent yield.

Bank of East Asia, HSBC and Standard Chartered Bank have underwritten $600 million in seven-year bonds.

HKMC chief executive Peter Pang Sing-tong said the issue - the sixth retail bond issue offered by a government-owned entity since October 2001 - was initially $800 million in size but could grow to $2.5 billion should investor demand warrant an increase.

The bond sale is part of the mortgage corporation's $14 billion fund-raising plan this year. It also plans to sell $7.5 billion in bonds to institutional investors and $4 billion worth of mortgage-backed securities.

Mr Pang said the mortgage-backed securities would use home loans bought from banks but not from the government.

The HKMC, established in 1997, aims to promote the debt market and reduce the risk to banks. It issues bonds to finance purchases of mortgages from banks, repackaging them into mortgage-backed securities for sale to investors.

Last year, the agency began to take on another important role - helping the cash-strapped government dispose of assets as part of its deficit-reduction efforts.

In April last year, it bought $4.8 billion in civil servant mortgage loans. Then in two transactions last month and late last year, it bought $16 billion in home-starter loans from the Housing Society.