By Dennise Williams, Staff Reporter"BROKERS ARE just greedy," commented one broker on the weak response to the latest Government bond.
On January 1, 2004, the Government offered brokers a 20-month instrument that will pay interest of 23.75 per cent for the first six months. After that, the rate will be pegged at 1.75 per cent above the weighted average yield for Treasury bills (T bill).
The brokers had two days to take up the offer, but all indications are that this offer was scoffed at by brokers who are being cautious before the national budget presentation in April.
"The fiscal numbers just came out and they reveal that the Government is in a tight spot," said one broker, who spoke on condition of anonymity. "The expectation was that the Government would give a rate of 25 per cent."
The 23.75 per cent rate that was offered was too close to the Bank of Jamaica (BoJ) long-term repurchase rates, the broker said. And the duration of the bond, at 20 months, was regarded as too long.
But at Barita Investments a broker said, "The 23.75 rates was comparable to what is out there, plus the variable rate feature was also attractive."
The Barita broker told Wednesday Business that her clients "were lukewarm to the offer. They bought, but not heavily."
The Barita broker said uncertainty is the ruling factor, so "People want to stay liquid because they don't know what to expect from the Government?"
THE DREADED BUDGET SEASON
And so, invariably, the discussion leads to the dreaded budget season. At Barita the sentiment is, "Come near to the budget, brokers want to stay short. Right now brokers want the best of both worlds. They want rates in the high 20s for 90 days or less. Currently, BoJ repurchase rates for 90 days are only around 17 per cent, so brokers prefer to stay liquid."
Said our outspoken broker, "Come budget time in April, we will see some rates in the 30s. So does it suit you to tie up funds in a bond with rates matching a T-bill that fluctuates? No. A lot of brokers were just not enticed to tie up their funds for 20 months for just 1.75 per cent above the T-bill rate. Let me tell you, brokers would rather hold funds at five per cent on the overnight rate or even at one per cent in a BoJ account to remain liquid."
At Barita, this view is echoed. "Cash is king. If the market changes, those with cash can make quick decisions." Another reason for this stubbornness, states our outspoken broker is this, "there must be a new issue by the Government in a couple of days or weeks that attracts a higher rate. Additionally, no broker wants to pass up the high rates that we expect in April. It is as simple as this. After tasting 33 per cent rates in April of last year, it's hard to get that out of your system."
