An opportunity to earn 1200 Hong Kong dollars with one hand, see clearly the low-risk silver bonds that resist inflation!

The Hong Kong Monetary Authority recently announced that onOctober 23, 2024, the ninth batch of silver bonds with a guaranteed interest rate of 4 cents will be officially issued, one cent less than the guaranteed interest rate of the previous period. The target issue size is 50 billion Hong Kong dollars, and depending on market response, it may be increased to a maximum of 55 billion Hong Kong dollars. The maximum allocation amount is 1 million Hong Kong dollars per investor, allowing each person to receive up to 100 lots of bonds.

銀色債券是香港政府在目前波動的投資環境下，為年滿60歲(即1965年或之前出生)的投資者提供的一項回報穩定的投資產品。銀債不設二手市場，亦是香港政府設計，希望其作為長者長期的收息工具。

此次銀債發行，認購期為From 10:00 AM on Monday, September 30, 2024, to 10:30 AM on Monday, October 14, 2024.。為期3年，每手0.01 million元，債券持有人將每6個月獲發一次利息，息率不少於4厘。金管局高層指，每年發債規模在預算案有5年滾動式發行計劃，3年期債息為2.5厘，按銀債4厘息而言仍有一定息差，故對這次銀債吸引力仍有信心。具體情況見下圖：

為什麼這次銀債值得買？

– The mechanism provides a safeguard against interest rate fluctuations.

Silver bonds tie their interest rates to inflation.Due to the government's 'guaranteed' interest rate, ensuring an annual interest rate of 4%, if a citizen successfully draws a silver bond with a face value of 0.01 million yuan, they will receive at least 4%, which is 400 yuan of interest per year.If the inflation rate exceeds 4%, the interest earnings will be higher. Silver bonds do not have secondary market trading. If cashed out before maturity, the government will redeem the bonds at the original price along with the corresponding cumulative interest. If needed, bond holders can sell the bonds back to the government, retrieving the principal and interest, so investors do not have to worry about interest rate fluctuations impacting rates during the investment period. With the U.S. starting an interest rate reduction cycle in September, Hong Kong deposit rates also dropped simultaneously. In this context, the 4% 'guaranteed interest' of silver bonds is still attractive to investors seeking stable income.

When there is a rate cut cycle, it is better than fixed deposits.

– Under the rate cut cycle, it is better than fixed deposits.

Silver bonds have an initial RSP investment period of three years, with interest payments every six months, divided into fixed-rate and floating-rate portions.

The fixed interest rate is set at 4%; the floating rate is calculated based on the arithmetical average of the year-on-year change rate of the Composite Consumer Price Index calculated by the government statistics department over the latest 6 months, to reduce the uncertainty and disputes brought by inflation fluctuations.

The annual interest rate of bonds will be based on the higher of the two mentioned, and if the floating rate is below 4%, it will be calculated as a fixed interest rate of 4%. Generally, investors can receive interest equal to the inflation rate during inflation; during deflation, they will receive the pre-determined fixed interest rate.

The greatest advantage of silver bonds compared to time deposits is that during a rate reduction period, the fixed deposit interest rate will only decrease, making it difficult for investors to lock in long-term interest rates with fixed deposits. Compared to time deposits, having a guaranteed interest rate + downside protection mechanism is a better choice.

– "Cyclical distribution," benefiting small investors.

According to government documents, individual investors holding a valid Hong Kong ID card and born on or before December 31, 1965, are eligible to participate in subscriptions.Each person can only submit 1 application, with a minimum subscription of 1 lot, namely an entry fee of 0.01 million yuan. The ninth batch of silver bonds still use a "cyclical distribution" mechanism to allocate bonds, striving to meet the subscription needs of small investors as much as possible.

The so-called "cyclical distribution," simply put, the government will first allocate one lot of bonds to each applicant. If the number of applicants exceeds 5 million, a lottery will decide who will receive the bond allocation. (The target issue price is 50 billion Hong Kong dollars.)

If there are excess silver bonds, the government will allocate an additional lot of bonds to citizens who subscribe to second-hand or more silver bonds. If there are not enough bonds for each person to receive a second lot, a lottery will decide the allocation. The government will then repeat this mechanism, continuing to distribute the third, fourth, or more lots of silver bonds to investors until all silver bonds are fully distributed.Based on past subscription situations, investors often use the 'human wave tactic', mobilizing their families to apply for subscriptions in order to have the opportunity to receive more bonds as much as possible.

Interest income explanation

The annual interest will be determined and announced on the relevant interest determination date (generally ten business days before the interest payment date), and can be checked on the government bonds website.(http://www.hkgb.gov.hk）

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