The Finance Ministry in its first foray into the local capital markets for this fiscal year has raised $12.7 billion from investors on a variable rate bond, which it will redeem in 10 years.

Governments VR bonds have been more heavily subscribed over the past year than fixed rate instruments - with the exception of an April 2006 issue - whose most attractive coupon in the period was 14 per cent; the lowest was fixed at 13.25 per cent.

The last two VR issues at the end of 2006 both had uptakes of just over $10 billion each.

The current offer was in fact oversubscribed, forcing the ministry to shorten the subscription period. The purchases came in at $140 million under the top performing variable bond last year - a 15 year issue which raised $12.84 billion for the Treasury.

The market's new penchant for risk has also seen a reshaping of the domestic debt's composition, with VR instruments accounting for 59.8 per cent, or $311.5 billion of the $521.3 billion local debt as of February 2007.

The fixed rate component represents 40.2 per cent, while 0.07 per cent or $389.6 million is non-interest bearing.

The overall national debt fell to $909.5 billion in February - largely reflecting a US$35 million pay down of the external debt - but the new outturn is merely a return to October 2006 levels when the public debt was just under $904 billion.

The current VR bond, Series Aj, has a coupon of 11.55 per cent for the first three months of the issue, with interest payable quarterly thereafter at the three-month treasury bill rate plus a reset of 1.5 per cent.

The debt instrument matures April 21, 2017.

lavern.clarke@gleanerjm.com