Apr 2014 Financial News

Gov't seeks to revitalise secondary securities market

Apr 30, 2014

The Ministry of Finance and Planning will put in train mechanisms to revive the secondary market in government securities which plunged as a consequence of some of the conditionalities agreed under the International Monetary Fund (IMF) agreement last year.

The Government plans to maintain a presence in the market during fiscal year 2014-15 in the interest of facilitating the resumption of active secondary-market trading in government securities, according to the medium-term debt-management strategy tabled in Parliament recently.

The issuance strategy will mirror the guidelines of gradually increasing the proportion of fixed-rate to floating-rate debt, it said.

"This is consistent with the objectives of keeping short-term maturities at acceptable levels, improving the maturity profile of the debt, while maintaining prudent levels of risk," said the document.

The Government said it will also engage financial-market participants with respect to further development of the domestic market, and maintain transparency in debt operations, including the issuance of securities during the fiscal year.

"This will be complemented by the maintenance of adequate levels of liquidity in each benchmark bond to facilitate secondary trading," it said. "Secondary-market trading of government bonds is vital to the medium-term objectives of the government as it will enable more efficient price discovery and maintain investors' interest in domestic securities," it added.

In a story published in Wednesday Business on January 29 this year, Dr Bert van Selm, the IMF resident representative in Jamaica, said one consequence of the economic-support programme was a reduction in secondary-market trading in government securities.

"For many financial institu-tions, it is an important asset on the books and has some impact on their lending decisions. We hope the reform programme continues, and as we continue to do reviews, these issues will be addressed and free up resources for lending to the private sector," he said.

The medium-term debt-management strategy, tabled in Parliament by Finance and Planning Minister Dr Peter Phillips, said, "The Government is aware that a developed securities market is a critical source of domestic financing of the budget and for national development."

Accordingly, the issuance strategy is to create on-the-run benchmark notes at various segments along the yield curve.

An on-the-run security is the most recently issued and hence most liquid of a periodically issued security. They usually trade at a premium relative to other securities. Older issues are referred to as off-the-run securities and trade at a discount to on-the-run securities.

The debt-management strategy, "in keeping with debt-management best practice of transparency in debt-raising activities", includes a calendar of issuances programmed for the first half of the fiscal year - April 15, 2014 to September 26, 2014. It also shows a schedule of Treasury Bill tenders for the fiscal year.

While the Government said it will issue securities along all segments of the yield curve, greater emphasis will be on benchmark notes with tenors greater than five years.

However, it said Government is cognisant that various market participants, especially in the banking sector and retail market, will require instruments along the shorter end of the curve and will facilitate demand for those instruments.

Notwithstanding, no more than 10 per cent of the required level of resources for the fiscal year will be acquired through market issuances which include the re-opening of benchmark bonds that mature in two years or less.

The borrowing requirement for the fiscal year will be just under $110.9 billion. Of that amount, $32.1 billion will be sourced from the domestic market, $24.1 billion will be sought from the PetroCaribe Development Fund, and the remaining $54.6 billion will be sought from external sources.


Source:
mcpherse.thompson@gleanerjm.com
Jamaica Gleaner
Wednesday April 30, 2014

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