By Lavern Clarke, Staff ReporterTHE LOCAL market has responded fairly well to Government's latest fixed rate investment debenture, taking up $6.04 billion of the unlimited offer before it closed last week.
Yesterday, the Ministry of Finance was back in the local market with another offer but for the first time in three to four years the instrument is being sold publicly at a variable rate. Market analysts noted that despite expectations of some $7-$9 billion of liquidity entering the system this week, the performance of the new investment bond will likely pale in comparison to the debenture.
There have been recent variable rate offers, but these were private placements, one of which was made several weeks ago, said Bruce Miller of Jamaica Money Market Brokers.
Senior director of the Ministry's Debt Management Unit, Murna Morgan, quoted policy in written response to queries on why the change in strategy, but gave no insight as to what market conditions dictated the move at this time.
The change, she said, was in line with the focus on "achieving a prudent debt strategy" under which the Government "seeks to borrow using a variety of instruments and a range of maturities to minimise costs and limit the risk to the debt portfolio."
But as at the end of May, the debt stock had climbed to $634.04 billion, according to the most recently released figures, an ap-proximate monthly growth of $16.5 billion since the fiscal year began. The Government is shooting for a debt/GDP ratio of 150.1 per cent by the end of fiscal 2003/04, which means it must shave 1.7 per cent off last year's near 152 per cent out-turn.
OFFER WON'T EXCITE MARKET
The market concedes that with the Government's move to bring interest rates down to about 22-24 per cent, a variable rate instrument makes perfect sense, but said the offer won't excite the market.
The new 43-month debt instrument is fixed for the first six months at 28.5 per cent - the same rate offered last week - but moves to a variable rate thereafter, quoted at WATBY plus 1.5 per cent. WATBY is the weighted average treasure bill yield, which is now at 28.46 per cent.
"In anticipation of interest rates going south, it's a good move for the Ministry of Finance," says Claudette Crooks of Guardian Asset Management. "From an investor standpoint, it may not be a good thing."
Christopher Chin Loy of Mayberry Investments had similar comments. "It's a wise move," he said, but as to the likely uptake and the market's response, "it is a good long-term investment. However, I don't see a good outlook for it."
Crooks said, however, that the instrument might do "moderately well" since the market "has limited options at this time" in reference to the number of products available. The offer closes July 24.
Meantime, Morgan said the investment debenture, which was fixed at 28.5 per cent, "met" Government's needs, noting that the result was related to the debenture's 'attractive pricing'.
Crooks said the uptake was well above the average $3.2 billion that the offers have been yielding for Government.
