Hong Kong expands Silver Bond offering to HK$50 billion, raises coupon to 5 per cent to help counter cost of living

Sale of new batch of inflation-linked bonds may be increased to as much as HK$55 billion depending on market response, HKMA says
Bonds will pay a minimum guaranteed coupon of 5 per cent annually, versus 4 per cent in the previous sale in August 2022

Banking & finance

Mia Castagnone

Published: 2:31pm, 14 Jul 2023

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Hong Kong is increasing the size of inflation-linked bond offering by as much as 57 per cent while also lifting the coupon on the notes, a move to help the city’s senior citizens cope with higher cost of living and currency weakness.

The government will offer HK$50 billion (US$6.4 billion) of Silver Bonds for sale to those 60 years and above to boost their income in an uncertain economic climate, the Hong Kong Monetary Authority (HKMA) said.

The three-year bonds will pay a guaranteed annual coupon of 5 per cent, versus 4 per cent in the previous sale of HK$35 billion of similar securities in August 2022. The bonds pay the minimum 5 per cent, or a floating rate pegged to the city’s consumer price index, whichever is higher.

In comparison, the yield Hong Kong government bonds maturing in August 2026 was recently indicated at about 3.58 per cent, according to Bloomberg data.

HKMA deputy CEO Darryl Chan (left) and Wong Tsz-cheuk, head of Greater China FX Cash and EM rates trading at HSBC, address the local media on Silver Bond sale in Central on July 14. Photo: SCMP

“The issuance size aims to promote greater participation by senior citizens, while the higher rate aims to help [them financially] in this highly uncertain investment environment,” HKMA deputy CEO Darryl Chan said at a media briefing. “Silver bonds are a safe and flexible investment for senior citizens.”

Underlying composite inflation was 1.8 per cent in May, according to the statistics department. Prices rose 1.7 per cent in 2022, the most since a 3 per cent gain in 2019 before the pandemic struck. Housing makes up 40 per cent of the basket, while food accounts for 27 per cent. The local currency has traded at the weak end of its band against the US dollar for much of the past year.

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The new batch of Silver Bonds will go on sale from July 28, the HKMA said. Depending on the response, the government may increase the size to HK$55 billion, Chan added. Subscription will end at 2pm local time on August 9 and the notes will be issued on August 18.

06:10

Underprivileged class bearing the brunt of Hong Kong’s rising inflation

Each buyer can subscribe up to a maximum of HK$1 million worth of the inflation bonds. The securities are not transferable and are not tradeable on the secondary market. Investors are allowed to cash out before the maturity date by selling them back to the government.

The HKMA conducts the bond offering on behalf of the government, while Bank of China (Hong Kong) and HSBC are co-arranging the sale. Buyers can also bid for the bonds via more than 20 participating banks, including China CITIC Bank International, Bank of Communications and Hang Seng Bank.

“Silver Bonds are a quality asset for senior citizens,” said Wong Tsz-cheuk, head of Greater China FX cash and EM rates trading at HSBC. “It’s defensive and also a forward-thinking product. We don’t have a lot of products on the market with these qualities.”

There are about 2 million eligible citizens born in or before 1964, according to HKMA’s Chan. Given that some elderly folks do not have a month or day stated on their local identity cards, anyone born in or before that year would be eligible to subscribe for the bonds, he added.

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