Guaranteed interest rate of silver bonds lifts to 4 percent

Silver bond

Author: Grandpa Chin16/08/2022

The government has recently announced the issuance of a new tranche of silver bonds for subscription by Hong Kong citizens aged 60 or above. The spotlight of the new tranche is that the guaranteed interest rate floor has been lifted from 3.5 percent in the previous tranche to 4 percent. This is comparable to many traditional dividend stocks.

Silver bonds are often called the “Seniors iBonds” as they are specially designed for the seniors. They have a subscription price of HK$10,000 per unit and a tenor of three years. Interests are paid once every six months at a rate linked to inflation in Hong Kong but will not be less than the guaranteed interest rate floor. In other words, investors will receive interests of no less than 4 percent per annum.

It is not an easy task to consider investment this year. Stock, bond and property markets are all facing downward pressure and increased investment risks under the interest rate hike cycle. However, if we do not consider investment, we are likely to be exposed to inflation risk, which is one of the major risks for retirees.

When making investment decisions, retirees usually do not only look for capital preservation but also seek stable interest income. Traditional dividend stocks, such as utilities and banks are popular choices among investors for dividend income. However, given the volatile market environment with rising inflation and interest rates, coupled with the fear of recession or stagflation, there are good reasons to worry about whether companies will decrease their dividend payouts or even cease paying dividends in the future. Moreover, there are concerns about falling stock prices, which could lead to capital losses for investors who are also receiving dividends.

Unlike iBonds, there is no secondary market for silver bonds, so bondholders cannot sell their bonds on the market. Bondholders can only ask for early redemption from the offering bank if necessary, and the government will redeem the bonds at the original price with corresponding accrued interest. Bondholders will receive full repayment of the principal amount invested upon maturity of the bonds. As retirees generally do not have a stable income, it is important to consider before subscription whether they need to use the investment capital in the next three years.

The subscription period for the silver bonds is from 23 August to 2 September 2022. The issue date is 14 September 2022.

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