The Government of Jamaica (GOJ) is a participant in the money market, which is the market for short-term debt securities/ instruments. The GOJ engages the money market through the Ministry of Finance to raise financing for the budget. This is done by issuing instruments such as Local Registered Stock, Registered Bonds, Indexed and Global Bonds, Treasury Bills and Investment Debentures.
LRS are usually medium to long-term government debt instruments, which may be fixed or variable rate by design.
Fixed Rate LRS: These are issued to investors through the Bank of Jamaica using a competitive bidding process. The interest rate is fixed over the life of the instrument and may be paid quarterly, semi-annually or annually.
Variable Rate LRS: Unlike the fixed rate LRS which is sold at a discount price, the variable rate LRS is issued at face value with a variable interest rate structure. This rate tends to be applied at a specified margin above the weighted average yield rate on the 90-days Treasury Bill and paid on a quarterly or semi-annual basis.
Registered Bonds: These are issued by the GOJ usually as a fixed rate instrument. It is similar to the fixed rate LRS except that it is not issued using a competitive bidding process.
Indexed Bonds: Generally these are bonds whose payments (usually coupon) depend on some underlying index such as inflation or the exchange rate.
GOJ Exchange Rate Indexed Bonds: These bonds take investments in Jamaica dollar which is then converted and booked in the nominal US$ equivalent. The US$ amount is the principal investment in Jamaica dollar multiplied by a fixed exchange rate – which is the rate applicable on the issue date of the bond.
Both principal and interest payments are adjusted for exchange rate changes and repaid to investors in Jamaica dollars at maturity. The rate of exchange for repayment is the Bank of Jamaica 10 day moving average selling rate** multiplied by a factor = 1.005
** This is the applicable rate on the 10th business day before the bond maturity date.
Global Bonds: Generally global bonds are bonds issued by an entity (including sovereign) with a high credit rating. The bonds may be issued and traded both in domestic and international markets simultaneously.
GOJ Global bonds: These international debt securities (bonds) are issued by the GOJ typically to raise currency (usually US and Euro) in the international market. The securities are usually held in international investment companies/ banks and brokers. They are also on offer to local investors who benefit from a tax-free rate of return on all GOJ Global bond issues excepting the issue maturing in 2017.
Investment Debenture/ Bonds: These are debt securities issued by the GOJ, which are considered unsecure but backed by the government’s guarantee to repay. They are generally issued at face value and may be fixed or variable in interest rate structure. Usually, the fixed rate investment debentures offers a fixed interest rate payable on a frequency specified by the GOJ. Meanwhile, the variable rate investment bonds offers interest that is set above the weighted average yield rate on the 90-days Treasury Bill and is payable on some specified frequency whether quarterly, semi-annually or annually.
This debt instrument is an agreement by the GOJ to repay investors a specified amount after a set period, usually of either 90 days or 180 days. The instrument is issued at a discount price through the Bank of Jamaica using an auction system with a competitive and noncompetitive bidding process.
Competitive bidding applies to investors applying for an amount exceeding $5000 Jamaica dollars. In this case, bidders determine the yield to maturity which they desire and the discounted price is based on discounting methodology.
Uncompetitive bidding applies to public sector entities and investors applying for $5000 or less, who choose to apply without indicating a discount price. In this case, the allotted price is based on the weighted average discount rate of competitive bids accepted.