HKMC launches A$ bond as local yields fall

PUBLISHED : Wednesday, 04 June, 2008, 12:00am
UPDATED : Wednesday, 04 June, 2008, 12:00am

The government-run Hong Kong Mortgage Corp (HKMC) has launched its first retail bond denominated in Australian dollars to meet investors' demand for high-yield currencies.

The mortgage agency, wholly owned by the government through the Exchange Fund, will issue a one-year fixed-rate bond that can pay up to 7.15 per cent annual interest - more than 1.5 per cent higher than one-year Australian dollar deposits, which pay about 6 per cent.

The bonds are sold through 17 retail banks at par, subject to a A$10,000 (HK$74,887) minimum and a handling fee of 0.15 per cent.

'The bond issue caters to investors who prefer stable interest income and also for more experienced investors who look for yield enhancement and portfolio diversification,' HKMC chief executive James Lau said.

Demand for retail bonds accelerated after local short-term interest rates dropped to near zero this year and investors sought the higher rates of foreign currencies.

With local inflation expected to continue rising because of surging global food prices and a weak local currency, investors need a return of at least 5 per cent to keep pace with inflation.

'This is a choice for investors looking for investment in high-yield currencies,' said Alan Luk Ting-lung, a treasurer at American Express Bank.

'Savers could lock their money into a fixed-rate bond for only a year, generating a return which is much higher than the conventional Australian dollar deposits.'

But he warned savers about the currency fluctuation in searching for higher returns. 'For retail investors, the bid-offer spread in the local bond market is usually high. They may find it difficult to trade the bond in the secondary market.'

Beside the new bond denominated in Australian dollars, HKMC is also offering another three series of retail bonds based in local currency with a minimum deposit of HK$50,000.

It pays 2.5 per cent annual interest on its two-year Hong Kong dollar bond. Investors may also consider the floating-rate one-year bonds which are paying a zero to 5 per cent annual return, depending on the movement of three-month Hibor, the benchmark rate at which banks lend money to each other.

The corporation wants to raise at least HK$1 million for each of the bond series denominated in Hong Kong dollars, and another A$1 million for the foreign-currency bond. It has raised a total of HK$14 billion this year.