By Denise Williams, Staff ReporterTHE MINISTRY of Finance and Planning will offer to the investing public two Fixed Rate bonds, Series A paying 17.125 per cent and Series B paying 17 per cent, from June 3 to June 7.
However, due to the tenor of the bonds Series A matures in June of 2010 and Series B matures in October of 2014, it is not clear how brokers will respond to the Government's latest instrument. What is clear is that brokers are well aware of the Government's intention to keep interest rates trending down. Claudette Crooks, business development manager at Today's Money, said, "Both instruments are really long. Since the start of the year, the longest instrument issued has been three years. But it suits the Government to lock in funds for a long period of time, especially when inflation seems set to be high for June due to oil prices."
Charles Ross, managing director of Sterling Asset Management states, "Right now, interest rates are low by historical standards, so the Government is trying to lock in lower yields."
But how will the investing public respond? "I don't know," states Mr. Ross, "many brokers are going to be wary of locking themselves in such a long instrument. They haven't forgotten last year when interest rates spiked up (to 33 per cent) and they got caught holding long-term low yielding paper. I think many will wait and see."
Ms. Crooks sees it this way, "If investors believe that oil prices will increase and the foreign exchange market will be under pressure and in turn pressure interest rates upward, the response will be low or lukewarm. If investors believe the opposite then they will purchase these instruments aggressively."
Keith Collister, business development manager at First Global Financial Services Ltd. is not in support of these bonds. He feels there are better investing opportunities.
"We view these instruments as unattractive based on the tenor of the relatively low yields being offered on instruments with a six year and 10 year maturity tenor."
After taxes, the yield on the 2010 will be 12.844 per cent and the 2014 will yield 12.75 per cent. Mr. Collister continues, "The Bank of Jamaica 365 day Repo rate is currently set at 16.40 per cent while the last Fixed Rate Local Registered Stock auction which was opened on May 27, 2004, offered investors the opportunity to bid and saw yields ranging between 16.8 per cent to 17.5 per cent on this five-year instrument.
"Therefore, we think there are better opportunities to be gained from investing in LRS instruments which are generally of a shorter tenor."
