Hong Kong to Sell HK$10 Billion Inflation-Linked Bonds Next Week

Hong Kong will sell as much as HK$10 billion ($1.3 billion) of inflation-linked bonds, the fourth offering since the city first issued the securities in 2011.

The government will start selling the three-year debt to residents from July 23 to July 31, according to a sales document distributed at a press briefing in Hong Kong today. The notes are scheduled to be issued on Aug. 11 and listed on the Hong Kong’s stock exchange on Aug. 12, it said. Only Hong Kong citizens with valid identity cards are eligible to apply.

“The responses we had in the past three sales were overwhelming and have helped raise the awareness of bond investment among the citizens,” Howard Lee, executive director for monetary management at Hong Kong Monetary Authority, said at today’s briefing.

Hong Kong first started selling inflation-linked debt to help citizens preserve purchasing power as gains in consumer prices accelerated. Demand surged since the second sale as the Federal Reserve kept borrowing costs near zero, a policy the city has to follow as the local currency is pegged to the dollar. The Hong Kong Monetary Authority bought a total of $5.6 billion in past two weeks to prevent the currency from rising beyond the permitted limit of HK$7.75 per greenback.

HSBC Holdings Plc offers 0.2 percent interest on 12-month fixed deposits of at least HK$1 million, according to its website. Consumer prices will climb 4.6 percent this year, compared with 4.3 percent in 2013, according to a May 16 forecast by the government.

Floating Rate

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 1 percent fixed rate, whichever is higher, according to the document. Bank of China (Hong Kong) Ltd. and HSBC are arranging the sale.

Applications for last year’s issuance totaled HK$39.6 billion, almost four times the HK$10 billion of three-year notes offered, according to the government. The first coupon, paid on Dec. 24, was equivalent to an annualized rate of 4.72 percent and the June 24 payment was 4.12 percent.

The yield on Hong Kong’s conventional three-year sovereign bonds was 0.82 percent yesterday and averaged 0.64 percent in the past 12 months, according to data compiled by Bloomberg.

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