Local Bonds

83.    Compared with RMB business and asset management, the development of Hong Kong's bond market has a slower start.  One reason is that the Hong Kong-US dollar peg prompts enterprises to raise funds in the more mature and more-liquid US bond market.  Another is that the sound fiscal health of Government precludes the need for raising funds through bond issuance.  Nevertheless, developing the local bond market is important for consolidating Hong Kong's status as an international financial centre.

84.    We introduced the Government Bond Programme (GBP) in 2009 to expand the base of investors.  We have implemented measures under the GBP to allow market makers to acquire institutional bonds with varying maturities more easily.  This will give institutional investors further flexibility and promote the development of the secondary bond market.  Separately, we have introduced the relevant bill to enable the issuance of Islamic bonds under the GBP, in order to encourage more issuers to raise funds through the financial market of Hong Kong.

85.    In view of the enthusiastic public response to inflation-linked retail bonds (iBond) issued by Government and the prevailing low interest rates of the Hong Kong dollar, I propose another iBond issue of up to $10 billion with a maturity of three years.  This issue will target Hong Kong residents.  Interest will be paid to bond holders once every six months at a rate linked to the inflation rates of the last half-year period.  The HKMA will announce the details in due course.