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Acting Secretary for Financial Services & the Treasury Julia Leung says the Government will move the two resolutions related to its bond programme in the Legislative Council on May 20.
Upon lawmakers' approval, the first batch of Government bonds will be issued in this year's third quarter.
Speaking to lawmakers today Ms Leung said the programme will comprise bond issues for institutional and retail investors and the bonds to be issued will mainly be denominated in Hong Kong dollars.
Bonds of tenors within the range of two to 10 years will likely be issued at the initial stage. Over the long term, consideration will be given to issuing bonds with longer tenors. Arrangements will be made to seek listing status for the bonds.
Issuance size
Views from major market participants indicate the market may be able to digest government bonds of $10 billion to $20 billion over the course of a year. The Government will conduct a more detailed assessment to determine the appropriate issuance size for the first year.
The Government also proposed the borrowing ceiling, which refers to the maximum amount of outstanding principal at any time under the programme, be set at $100 billion. The proposed ceiling represents a long-term target over a period of five to 10 years.
Given the programme's ongoing nature, the proposed ceiling should give the Government the flexibility required to adjust the issuance size and tenor of individual tranches in response to prevailing market conditions.
Fund use
Sums raised under the programme will be credited to a fund to be established under the Public Finance Ordinance. The fund will not be treated as part of the fiscal reserves and will be managed separately from the general revenue. It will be used to repay the principal, meet the financial obligations and liabilities associated with the programme, and make investments.
If there is a positive balance in the bond fund after all financial obligations and liabilities are met in relation to the programme, the surplus funds may be transferred to the general revenue.
Any shortfall of funds for fulfilling the financial obligations and liabilities in respect of the programme may be financed from the general revenue in accordance with the Loans Ordinance.
A long-term and conservative investment strategy will be adopted for the bond fund with the objectives of preserving capital and generating reasonable investment returns for covering the financial obligations and liabilities under the programme.
Fund management
The Monetary Authority will be tasked to manage the bond fund, and the same "fixed rate" sharing arrangement for investment income applicable to the fiscal reserves will apply to the bond fund.
The investment income to be paid by the authority on the bond fund for a year will be calculated on the basis of the average rate of return of the Exchange Fund's investment portfolio over the past six years or the average annual yield of three-year Exchange Fund Notes for the previous year, whichever is higher.
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