Hong Kong’s inflation-linked bonds, the third ever issue, gained less on the first day of trading than the previous two offerings on speculation the city’s inflation will ease because of China’s economic slowdown.
The price of the linkers due 2016 climbed 3.2 percent, Hong Kong Stock Exchange data shows. Three-year inflation-linked debt sold in 2011 rose 5.1 percent on debut, while similar-maturity notes issued in 2012 advanced 5.3 percent. The yield on 10-year U.S. Treasuries has increased 15 basis points to 2.5 percent since Federal Reserve Chairman Ben S. Bernanke said June 19 the central bank could rein in stimulus this year and end it in 2014.
Economic growth in Asia’s largest economy has remained below 8 percent in the last four quarters, the first time that has happened since at least 1994, according to data compiled by Bloomberg. China International Capital Corp. and Goldman Sachs Group Inc. cut their 2013 expansion forecasts this week. Inflation will be 4.5 percent this year in Hong Kong, compared with 4.1 percent in 2012, a May 10 government forecast shows.
“China’s slower growth means easing inflationary pressure for Hong Kong,” said Castor Pang, head of research at Core Pacific-Yamaichi in Hong Kong. “The potential tapering also means the yield spread between U.S. and Hong Kong will narrow, damping the attractiveness of the linkers.”
The government received HK$39.6 billion ($5.1 billion) of subscriptions from 520,823 people for the HK$10 billion linker sale this year, according to the Hong Kong Monetary Authority. Interest will be paid every six months tied to a floating-rate equivalent to the average change in the consumer price index over the previous six months, or a 1 percent fixed rate, depending on which is higher.
The city first sold inflation-linked debt to help citizens preserve purchasing power as gains in consumer prices accelerated. Demand surged at last year’s sale because of near-zero borrowing costs in the U.S., a policy the city has to follow as its currency is pegged to the dollar.
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