Hong Kong’s iBonds offer investors some peace of mind in troubled times
- Far more attractive than putting money in a deposit account, spared stock market volatility and backed by one of the world’s richest governments, the latest inflation-adjusted issue should prove popular
The government plans to issue HK$10 billion worth of new iBonds for retail investors. Two questions come to mind. Is it worthwhile for the proverbial mum and pop investors to take up the offer? And will it benefit the government? The answer seems to be yes in both cases. It has been almost four years since the last batch of iBonds was issued. The first series was introduced in 2011. Judging from previous responses, the inflation-adjusted bonds will prove popular again.
Set at a minimum coupon rate of 2 per cent which may be adjusted upwards to match average year-on-year inflation, iBonds are more attractive than putting money in a bank deposit account, which offers a near-zero rate. They go on sale from October 23.
They are also backed by one of the world’s richest governments, despite new fiscal deficits caused by economic damage from Covid-19, the US-China trade war and political tensions.
Hong Kong’s monetary policy is tied to the US Federal Reserve because of the currency’s dollar peg, which subjects the local economy to US business cycles and cost of money, instead of those of the mainland.
As the latter economy is recovering faster than anticipated – and faster than anywhere else – an instrument is needed to bridge the gap between the trough and crest of the economic cycle.