Taking a cue from the Bank of Jamaica, investors this week demanded substantially higher yields in the latest Treasury Bill auction, effectively sending interest rates higher.

The yield on the six-month bond that has become the proxy for interest rates was 19.26 per cent, a two and a half point gain on last month's 16.96 per cent.

The three-month yielded 16.92, up 171 basis points.

Some applicants demanded, and were allotted bill returns of up to 20.5 per cent on the six-month and 18.49 per cent on the three-month.

Both T-bills in the amount of $400 million each were oversubscribed - the six month moreso by 100 per cent.

Special certificate

Last week, the Bank of Jamaica, worried that the financial system was too flush with cash, put on the market a 20.5 per cent special certificate of deposit to gobble up liquidity.

The two-week instrument matures December 3. The BOJ on that day will also raise the liquidity reserves, from 23 per cent to 25 per cent.

The current T-bill rates are used in the pricing of coupon payments on GOJ variable variable rate instruments.

Pan Caribbean in a note to clients said the increased yield could be reflective of both the central bank's squeeze on liquidity as well as the downgrade of Jamaica's sovereign credit by Fitch Ratings.

business@gleanerjm.com