Overheard: Hong Kong’s Silver Bonds

Forget negative or minuscule yields. Hong Kong is selling the highest-yielding triple-A government bonds in the world.

But there is a catch: The only people who can buy them are Hong Kong residents over 65 years old.

The semiautonomous Chinese city will sell three-year Silver Bonds, as they are called, that will pay out coupons linked to the city’s inflation rate, which was 2.6% in May, with a minimum of 2%. The debt will yield more than government bonds with the same maturity in all of the 12 economies that enjoy triple-A ratings from Standard & Poor’s.

Hong Kong’s own three-year yield, meanwhile, stands at about 0.5%. Hong Kong can subsidize the bonds because the city doesn’t even need the money. Hong Kong has had budget surpluses every year since 2004 and is sitting on a fiscal reserve of $110 billion.

Financial Secretary John Tsang hopes the bonds will encourage financial institutions to tap into the “silver market.” But since banks won’t likely subsidize yields, this seems unlikely.

In years past, Hong Kong has refunded some of its regular budget surplus to all residents.

This time, just the older generation with cash to invest will benefit.