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. The iBond’s minimum coupon will hedge against US zero rates, and the inflation adjustment against the crest. Financial Secretary Paul Chan Mo-po said the financial services sector is crucial to the local economy and it is important to offer residents a greater share of its fruits. The offer may be seen as “a sweetener” for a middle class demoralised by social unrest, the pandemic, and looming economic sanctions threatened by the United States. Hong Kong to issue new iBonds with guaranteed interest rates Indeed, when it comes to financial innovations since the 1997 handover, the Tracker Fund and the iBonds have been the most practical for conservative investors, providing low-cost and relatively safe passive investment for the long haul. As for the second question, does it make sense for the government to issue the retail-friendly bonds now? It seems so. The government is expected to face a budget deficit for the 2020-21 financial year of more than HK$300 billion, mostly as a result of measures to counter the economic fallout from the pandemic. The expected HK$10 billion in debt, which may be raised to HK$15 billion if sales prove popular, will help provide a level of liquidity for the government. The local bond market is underdeveloped. Hit hard by the downturn, some cash-strapped but otherwise well-managed companies may be tempted to follow the government’s example and issue their own bonds. Given the recent volatility of the stock market, the iBonds will offer a respite and peace of mind for retail investors.