New batch of iBonds expected to enjoy high demand from Hong Kong public

The government's fourth annual inflation-linked bond sale will continue to enjoy fervent demand from retail investors because the zero-risk product remains appealing in hedging interest-rate and currency risks, said analysts.

"There is a trend for investors to transfer their investment to dividend-paying equities or some other interest-rate hedging products. Ibond is a very nice alternative to them," said Catherine Cheung, the head of investment strategy and research at Citibank's Global Consumer Group.

The Hong Kong Monetary Authority said yesterday it would sell this year's batch from Wednesday to July 31. The bond will carry a three-year maturity and the government also targeted the same issuance size as in previous years of HK$10 billion.

The iBonds appear to be a safe bet amid the uncertain rate environment. Investors favour risk-averse products due to fears of a major sell-off in the bond market as the US Federal Reserve appears poised for its first interest rate rise since the financial crisis in 2008.

"The US central bank is likely to lift its interest rate to a maximum of 2 per cent by mid-2016," said Gary Leung, a deputy general manager of global markets at Bank of China. "Ibond investors would be able to enjoy at least 2 per cent premium as Hong Kong's inflation rate is forecast at about 4 per cent."

The first batch of iBonds is maturing this month and has delivered an accumulative return of 14.08 per cent since its launch. It has generated a return of almost 5 per cent over the past three years. The second batch has delivered 10.9 per cent while the batch last year generated a 9.63 per cent return.