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Following is a question by the Hon Mrs Regina Ip and a written reply by the Financial Secretary, Mr John C Tsang, in the Legislative Council today (October 28):
According to the press release issued by the Hong Kong Monetary Authority on September 2, 2009 and the relevant information provided on the Government Bond Programme's website, the tender for the inaugural issue of Government Bonds under the Institutional Bond Issuance Programme had been completed. "A total of HK$3,500 million two-year Government Bonds were offered under the Institutional Bond Issuance Programme. The issue was well received by institutional investors, with the ratio of bonds applied for to bonds issued (i.e. the bid-to-cover ratio) reaching 6.45. The average price accepted was 100.65, implying an annualised yield of 0.59%." In this connection, will the Government inform this Council:
(a) why only HK$3,500 million government bonds were issued this time; what criteria/data were used in calculating this amount; and whether the decision was made by the Financial Secretary or the Monetary Authority;
(b) given that it has been reported that the balance of the Hong Kong banking system earlier rose to almost $250 billion due to an influx of hot money, whether the Government will consider expediting the issuance of bonds (Exchange Fund Bills or government bonds) to absorb the surplus liquidity in the market; if it will, of the details; if not, the reasons for that;
(c) when it will start implementing the Government Retail Bond Issuance Programme, and of the details ; and
(d) given that The Hong Kong Mortgage Corporation Limited ("HKMC") issued a total of HK$12.4 billion corporate debts in the first half of 2009, claiming that it could "promote the bond market development", and while the overriding objective of the Government Bond Programme is to promote the further and sustainable development of the local bond market in Hong Kong through systematic issuance of government bonds, whether the Financial Secretary will consider ceasing the issuance of HKMC's bonds and handing over the entire "important duty" of promoting the local bond market to the Government Bond Programme in the future?
Reply:
President,
(a) When designing the issuance schedule, the Government will determine the size of individual Government Bond issues of different tenors after fully considering the prevailing market demands including investors demand and the bond market development goal. The size of each Government Bond issue is endorsed by the Financial Secretary.
(b) Under the currency board system, capital inflows will result in an increase in the Aggregate Balance. Under this circumstance, banks will demand more Exchange Fund bills out of liquidity management considerations. The issuance of additional Exchange Fund bills by the Hong Kong Monetary Authority recently is to meet banks' demand in this regard. Nevertheless, such demand cannot be fulfilled by the issuance of Government Bonds as they are not part of the Monetary Base.
(c) We will continue to monitor market conditions (including market interest rates, investors' appetite and supply from other issuers) closely, and will make reference to the professional advices offered by the Co-arrangers banks for the retail Government Bonds, namely, the Bank of China (Hong Kong) Limited and The Hongkong and Shanghai Banking Corporation Limited consortium in deciding the details and timing of issue of the Government Bonds. The retail Government Bonds will be launched when the market conditions are right, and details will be announced by then.
(d) The Hong Kong Mortgage Corporation (HKMC) needs to raise funding for its operational needs through various channels, including tapping of the local debt market. As Hong Kong's debt market is far from mature, HKMC's participation in the debt market provides contribution to the development of the local debt market, which complements the Government's efforts in this regard.
Ends/Wednesday, October 28, 2009
Issued at HKT 12:06
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