By Dennise Williams, Staff ReporterTHE MINISTRY of Finance & Planning has opened a one-week tender for a two-year fixed rate investment debenture offering 17 per cent interest from April 20 to April 27.
This new debenture is expected to garner a great deal of investor participation. This is especially true given the fact that on April 19, the Bank of Jamaica (BoJ) lowered rates by 20 to 50 basis points.
On BoJ open market instruments, rates now range from 14.40 per cent to 16.90 per cent. However, throughout the month of April, $57 billion in Local Registered Stock (LRS), Fixed and Variable Rate Investment Debentures and Certificates of Securities Held (COSH) maturities are coming due.
Therefore, many financial experts believe the Ministry of Finance 17 per cent debenture is aimed at soaking up some of this excess liquidity that is coming into the market. And while investors have a wide range of choices in terms of where to park their money, there does not seem to be any concern regarding any capital flight out of the stock market or capital flight away from the local currency.
"The market reaction to this debenture should be positive, because in the last month or two, the BoJ has aggressively reduced their rates," states Orville Johnson, chairman of Today's Money Ltd. "Also, with the positive reaction to the budget that has just been read, there is confidence in the market to go long term.
"A two-year instrument with 17 per cent will see a lot of investors taking it up. Investors see the way more clearly and feel that rates will not be this high for the next two years."
Mr. Johnson said, "The stock market will benefit because interest rates are really going down, companies are profitable and the Government is managing fiscal debt."
Leo Williams, managing director of JMMB Securities, agrees.
"I am not worried about this debentures effect on the stock market," Mr. Williams said. "There is a lot more money floating around in the financial markets than one debenture is worth. And people are attracted to equities market because of the performance that they have seen so far."
But at least one financial guru believes that this 17 per cent debenture could signal an upward creep in interest rates. Karen Fitzritson, financial analyst and director of Fitzritson & Associates, states, "Interest rates will go up. This debenture is going to be a telling signal in terms of terms of investors' tolerance for low interest rates."
The Ministry of Finance disagrees, however. At the Domestic Debt Department, a source told Wednesday Business, "The impact of this debenture is not going to have an upward movement on interest rates. Rates are going down."
