Hong Kong Linkers Rise on Debut as Investors Extend Maturity

Hong Kong’s latest inflation-linked bonds rose on their debut on speculation investors are switching to the new notes to extend the maturity of their holdings.

The linkers due 2017 rose 5.2 percent at the close, Hong Kong Stock Exchange data show. Similar securities due 2016 fell by 0.3 percent. Consumer prices will accelerate to 4.6 percent this year from 4.3 percent in 2013, according to a May 16 government forecast.

“We are seeing some investors switching from last year’s linkers to this year’s,” said Jasper Chan, senior corporate finance officer at Phillip Securities Group in Hong Kong. “There is demand in the secondary market as yields are still relatively attractive given Hong Kong’s inflation outlook.”

Hong Kong started selling inflation-linked debt three years ago to help citizens preserve purchasing power. Demand surged from the second sale in 2012 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 in a range of HK$7.75 to HK$7.85.

HSBC Holdings Plc offers 0.2 percent interest on 12-month fixed deposits of at least HK$1 million ($129,000), according to its website. Interest on the new inflation-linked bonds 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 to the payment, or a 1 percent fixed rate, whichever is higher.

Reduced Bids

The government received HK$28.8 billion in subscriptions from 488,170 people for this year’s HK$10 billion linkers sale, compared with HK$39.6 billion pledged by 520,823 individuals in a 2013 issuance. The Hang Seng Index of stocks gained 6.8 percent in July, the most since September 2012.

“Investors prefer to put money into stocks over the linkers as the stock markets have been performing well,” said Ben Kwong, a director at KGI Asia Ltd. in Hong Kong.

The Hong Kong Monetary Authority has bought $9.7 billion since July 1 to prevent the city’s currency from rising beyond the permitted range, as stocks rallied on signs that growth in China is recovering. The world’s second-largest economy expanded 7.5 percent from a year earlier in the April-June period, after a 7.4 percent gain in the previous three months. Exports rose by a better-than-expected 14.5 percent in July, leaving a record trade surplus of $47.3 billion.

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