Hong Kong's government has launched a new tranche of Silver Bonds, featuring a guaranteed minimum interest rate of 4.25%.
At a press conference, Secretary for Financial Services and the Treasury, Christopher Hui, stated that the bond's interest rate was determined by considering a basket of factors, including current market conditions, pricing of similar products, and prevailing interest rates. He expressed confidence that the product would be attractive to investors.
Addressing the impact of potential further rate hikes overseas, a managing director from one of the joint lead arrangers, Hongkong and Shanghai Banking Corporation Limited, noted that while the market expects one to two rate hikes by the US Federal Reserve, totalling 0.25% to 0.5%, he believes the bond's 4.25% guaranteed rate is sufficient to compensate for the returns needed post-hikes. Therefore, the rate increase is not expected to affect the asset's quality.
A general manager from another joint lead arranger, BOC HONG KONG (02388), pointed out that with ongoing geopolitical tensions, volatility in both stock and bond markets is likely to persist. He highlighted the Silver Bond's stability, predictability, and high liquidity, along with the ability to redeem it at any time and recover 100% of the principal, as key advantages. He deemed the guaranteed interest rate of 4.25% as appropriate and predicted that over 300,000 applications are very likely this year. The bank recommends that clients, depending on their asset situation, consider applying for 20 to 30 lots of the bond.
Hui also mentioned that the issuance was based on the bond issuance plan from earlier this year, aiming to deepen public understanding, and noted interest from the older retail demographic. The number of eligible applicants this year stands at 2.47 million. To prevent concentration of bonds among a small number of investors, the maximum allotment per investor will remain at HKD 1 million, equivalent to 100 bonds.
Regarding the total issuance size, which remains capped at HKD 55 billion, a deputy chief executive of the Hong Kong Monetary Authority noted that the allocation must balance the institutional and retail portions. He added that this issuance already accounts for one-third of the annual HKD 160 billion bond issuance plan, a not insignificant proportion.
Comments