As US Treasury rates rise, Jamaica is
particularly exposed to the higher borrowing costs, because of
financing needs in 2014 and 2015 following this
$932m-equivalent International Monetary Fund
(IMF) agreement, investors say.
Yields on 10-year US Treasuries have backed up
in recent weeks, repricing curves for dollar borrowers
globally, as investors anticipate the Federal
Reserve’s return to normal monetary policy.
Markets expect the Fed will begin rolling off quantitative
easing in the second half, and begin raising ultra-low interest
rates in 2015.
"If the overall rates go higher, one has to
look at the countries that need to fund themselves, and Jamaica
is at the top of the list," says Carl Ross, Oppenheimer's
managing director of investments.
Ross says Jamaica ought to stick with the IMF
program and show some record of implementation of the program
first and at a later point reassess the debt markets. However,
he is not positive on Jamaica beyond a six-month horizon, he
Investors are quickly readjusting their views
on global rates. Most respondents to a Barclays survey in the
second quarter said they expected yields on the US 10-year to
be between 2% and 2.5% by the end of the year. Asked in the
first quarter, a majority of respondents pointed to rates
between 1.5% and 2% by year end.
"Some of these countries have high and
unsustainable debt. In the case of Jamaica, we saw
restructuring of global debt in 2010 and again this year.
Moody’s just said recently that Belize and Jamaica
will default again," says John Welch, executive director of
macro strategy at CIBC World Markets.
"With the consecutive restructurings, the
country has given itself two to three years to pursue
aggressive measures to get its debt to manageable levels," says
Sean Newman, portfolio manager at GE Asset Management. He notes
however, positives for the country include recent Chinese
Jamaica is rated CCC/Caa3/CCC+. Its debt burden
stood at 132% of GDP in 2012, and the nation has a spotty track
record when it comes to completing IMF programs, Fitch said in
a recent report. Jamaica’s last bond of any kind
was a $400m sale in 2011.
It got more than 98% acceptance in March for
National Debt Exchange, which targeted 860 billion Jamaican dollars
($9.12 billion) worth of debt denominated in local currency, US
dollars and inflation-indexed notes.
Late last month, Jamaica's finance
ministry visited the European buyside on a non-deal
roadshow to of update investors on its budget and IMF
Ross, Newman and Welch spoke at the EMTA
Central America and Caribbean Forum in New York Wednesday.
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