Hong Kong to snap up government offer of inflation-linked bonds
Hongkongers likely to seize chance to lend money to their government, receive interest at a rate linked to inflation
The Hong Kong Monetary Authority's anticipated sale of a third tranche of inflation-linked bonds is set to meet with a rich vein of demand despite a recent decline in the rate of consumer price rises.
Hong Kong's annual rate of consumer inflation eased to 3.6 per cent in March from February's 10-month high of 4.4 per cent, and market participants expect the new "iBonds" to be sold with an underlying reference inflation rate of around 3.5 per cent.
But with consumer prices expected to tick higher - economists at HSBC forecast an annual inflation rate of 4.5 per cent in 2013 - analysts anticipate healthy demand for the new issue, much like that seen for the two prior tranches.
"It's a no-brainer trade if you buy at par at new issue," Ben Sy, head of fixed income of JP Morgan Private Bank in Asia, told the South China Morning Post.
Hong Kong government bonds with a three-year maturity yield just 0.34 per cent per annum. Even if Hong Kong fell into deflation and the iBond paid just an expected minimum 1 per cent coupon, that would still be three times better.
Market participants anticipate the bonds to be sold in June. Mavis Hui, spokeswoman for the Financial Services and the Treasury Bureau, said a sale date had not been finalised.
"The preparatory work for the third iBond is in progress. We will make an announcement once the timetable has been fixed," Hui said.