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Hong Kong to sell HK$10b inflation-linked bonds next week

[HONG KONG] Hong Kong will sell as much as HK$10 billion (S$1.76 billion) of inflation-linked bonds, the fifth offering since the city first issued the securities in 2011.

The government will start selling the three-year debt to residents from July 21 to 29, according to a sales document distributed at a press briefing Thursday. The notes are scheduled to be issued on Aug 7 and listed on the city's stock exchange on Aug 10, it said. Only Hong Kong citizens with valid identity cards are eligible to apply.

"The bonds should be well received this year as the performance and interest rates in the past have been quite good," said Gary Leung, deputy general manager for global markets at Bank of China (Hong Kong).

Hong Kong first introduced inflation-linked bonds to help citizens preserve purchasing power and boost the local debt market. Demand receded last year on anticipation that the Federal Reserve would soon end its near-zero interest-rate policy, which the city has to follow as its currency is pegged to the dollar. Slower economic growth in China also led to lower expectations of price gains.

The government received HK$28.8 billion in subscriptions from 488,170 people for a HK$10 billion linker sale last year, according to the HKMA. In 2013, there were HK$39.6 billion subscriptions from 520,823 people for issuance of the same amount.

Interest will be paid every six months at a floating rate equivalent to the average change in the consumer-price index for the six months leading up to the payment, or a one per cent fixed rate, whichever is higher, according to the document. Bank of China and HSBC Holdings are arranging the sale.

BLOOMBERG