Category Archives: Finance

Hong Kong I-Bond

iBond is a Hong Kong dollar retail inflation-indexed bond issued by the Hong Kong government. There have been 3 series issued. The first issuance was announced in 2011-2012 government budget of Hong Kong by John Tsang, the fourth Financial Secretary since the Hong Kong handover.

The rate for each interest payment will be determined by the year-on-year inflation rate of Hong Kong, which according to the Hong Kong Composite Consumer Price Index, with the lower limit of 1% return. The first iBonds were listed on Hong Kong Stock Exchange to listing on 29 July 2011. The offered issue amount is HKD 10,000,000,000.

 

  • 3 Year Maturity, Semi-Annual Coupon, Coupon tied to inflation rate (and is at least 1%), face value = $100
  • Issued at par
  • On the first trading day, price went up to $106 (i.e., 6% premium)
  • Does that mean the expected inflation in the next 3 years is 6% per year??

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You can’t tell the expected coupons without knowing the discount rates.

Depends on Coupon & Discount rate (C & r) –> we cannot observe from the market.

We can assume that discount rate can be close to what you can earn from the US treasury bill because HKD is tied to the USD.

Before we can make assumption, we cannot tell anything about the expected inflation. We also have to assume C & r are fixed here too. (Unrealistic hence we cannot say expected inflation in next 3 years is 6% per year.