By Errol Gregory, Contributor 
Gregory
TWO WEEKS ago Jamaica's Money Market got a shot in the arm that passed without even a whimper. In specific terms the government put a 30 year instrument on the local market. And, as if to show that this was no fluke, only days later the feat was repeated as the Monetary Authorities put another 30 years bond on the market. Of course, the government had previously put a 20 year bond on the overseas market thus signalling its intention to generate a genuine long-term market for Jamaican debt instruments.
In this regard, the authorities appeared to have had a game plan and put the market in a receptive mood so that the latest 30 year instruments hardly raised any eye brows.
In addition, not to be outdone the private money market had joined the fray by issuing a 30 year highway 2000 Bond that was designed by DB&G and the then Investment Masters Ltd (now part of Guardian Life)
In terms of the details of the offers, the average yield of the first 30 year issue that had a 15 per cent coupon rate, paid investors an average 16.90 per cent yield and a high yield of 18.22 per cent. The latest 30 year LRS also had a 15 per cent coupon rate but provided an average 17.18 per cent yield with a high yield of 17.42 per cent. Investors were able to secure a higher average yield this time around as the first issue was substantially oversubscribed and with the liquidity situation tightening at the time of the offers, bold investors sought higher yields thus pushing up average yields.
But what is most significant about these long terms LRS offers is that given the many imponderables facing the economy, they definitely reveal investor confidence in the future and in the capacity of the monetary authorities to stick to agreed targets. Some of these uncertainties relate to anxieties about the international and US economy, problems in the local Tourist Industry and uncertainties associated with an election year.
In addition, it should be noted that the Authorities showed an understanding of investor psychology and put it to good use. This is so as they knew that, economic uncertainties notwithstanding, given government's frequently stated commitment to keep the exchange rate stable while pulling interest rates down, would create an environment in which investors would be willing to go long - especially if the instrument was attractively priced. Given the investors' warm response to the issues, the authorities deserve commendation for exploiting the realities of the marketplace.
It should also be noted the recent clarification by the Minister of Finance concerning the markets response to the latest 6 year US Dollar Index Bond served to restore investor confidence in the market. There was wide speculation that the results of this bond offer were disappointing as it followed closely on a previous issue with a similar tenor and paying a similar yield. The Finance Minister subsequently cleared the air arguing that the bond issue raised J3 billion (approximately US$62M) thereby reassuring investors that the market was safe to invest in. This is a timely reminder of how information and open communication drive markets.
The placing of two 30 year instruments on the local money market is a definite plus for the economy as it signals a shift away from the short end of the market. It is a real pity that because of the short term exigencies facing the economy plus the reality of the election this development on the money market has been "a non issue".
Further, can you imagine how things would have been different if the proceeds of these long term bonds could be used to meet the long term development needs of the economy rather than meet the short term financing needs of the government.
