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Wednesday, August 3, 2016, 18:46

First silver bond subscription ends

By Oswald Chan

HONG KONG - The subscription period for the silver bond ended on Wednesday, with the market expecting each applicant may be allotted 3 to 5 lots of the bond.

The Hong Kong government launched the first silver bond for subscription by Hong Kong residents aged 65 or above on July 26. The bond will be issued on Aug 12.

Market sources said local elderly investors have utilized approximately HK$6 billion ($774 million) to HK$9 billion the silver bond subscription. Based on the predicted 1 to 2 times oversubscription, each applicant may be allotted 3 to 5 lots of the silver bond.

Winnie Cheung Wing-sze, global markets assistant general manager at Bank of China (Hong Kong), said market responses are better than expected.

"The number of applicants (Hong Kong residents aged 65 years old or above) for silver bond subscription handled by BOCHK are 27 percent higher than the same applicant category during the sixth issuance of inflation-linked bonds (iBond) handled by us,” Cheung said in a telephone interview on Wednesday.

"The subscription amount involved for the silver bonds handled by us is 1.7 times higher than the subscription amount of iBond’s sixth issuance,” Cheung added.

The target issuance size of the silver bond is HK$3 billion, whereas the issuance size of iBond is HK$10 billion. The silver bond has a tenor of three years and bondholders will be paid interest once every six months at the rate linked to the inflation rate of Hong Kong, subject to a minimum rate of 2 percent as against the guaranteed 1 percent return rate of the iBond.

Unlike the iBond, the silver bond cannot be traded on the secondary market.

Financial Secretary John Tsang Chun-wah, in delivering the 2016-17 Budget in February, said the government will issue the silver bond this year and next year as a pilot scheme to provide an investment product with steady returns for senior residents and encourage financial institutions to tap into the immense potential of the silver market by introducing a wider spectrum of products.

The iBond was first issued in 2011 by the government to provide a steady stream of investment income for Hong Kong residents that can beat the local inflation rate.

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