Government revealed details of iBond5 or inflation-linked bonds

It's up for subscription until July 29.

According to DBS, the government announced details of iBond5 (inflation-linked bonds) last week, which will be up for subscription from 21-29 July. The size of the issue would be up to HK$10 billion with a tenor of three years.

Interest will be paid every six months based on the average CPI in the six months prior to the pay-ment date. According to our inflation forecasts, the coupon rate is expected to be more than 3%.

Here's more from DBS:

Government one-off subsidies, and the base effects they create, will put some downward pressure on the inflation rate in 2015. Firstly, despite a continual rise in rents, housing inflation is expected to be a few percentage points lower in 2Q and 3Q due to the base effect of government rate waivers.

The government would waive rates in April-September 2015, subject to a ceiling of $2,500 per tenement per quarter. This is higher than the $1,500 waiver applied to the same period in 2014.

Secondly, electricity, water and gas inflation will also be noticeably lower in the second half of the year due to a very high base in 2014 caused by the timing of government subsidies. In the second half of last year, CPI inflation for electricity, water and gas was lifted by the cessation of electricity subsidies (CPI for this component averaged more than 20% in 2H14 compared to 4.5% in 1H14).

To reflect these impacts, we are projecting 3.2% headline CPI for 2015, lower 4.4% than in 2014.