Home' Trinidad and Tobago Guardian : October 10th 2013 Contents Today, we, at Bourse, will be
addressing the local monetary
sector with respect to inflation,
liquidity, the interest rate envi-
ronment and interest rate out-
look. We will also take a look
at the local bond market, bringing to light its
performance for 2013 thus far and implications
Central Bank reports:
According to the Central Bank (the bank),
Headline Inflation, measured by the Retail
Price Index, increased to 5.1 per cent year on
year (y-o-y) in August, from 3.8 per cent in
July. However, this compares favourably with
the rate which stood at 7 per cent in August
On a monthly basis, headline inflation
increased by 1.3 per cent in the month after
a substantive 3.0 per cent decrease in July.
Food inflation, which is the main driver of
headline inflation, recorded a single-digit rate
for the second consecutive month, albeit an
increase to 7.7 per cent y-o-y in August from
4.8 per cent in July. Core inflation (inflation
ex-food prices) remained stable at 3.0 per cent
in the month.
Generally, private sector credit increased in
July, growing by 3.0 per cent y-o-y, a slow
but steady growth rate from the 2.5 per cent
recorded in June.
The bank noted that of the three major cat-
egories of private sector credit, real estate
mortgage lending remained strong supporting
the overall growth of private sector credit.
Business loans, however, continued to lose
steam for the eighth consecutive month.
High liquidity levels continued to plague
the financial system throughout the first three
quarters of 2013.
Liquidity as at September, rose almost 32
per cent to $8.3 billion, up from $6.3 billion
at the end of August 2013. Large net domestic
fiscal injections coupled with weak credit
demand contributed to the build-up of liquidity
levels in the financial systems.
The Central Bank issued a $1 billion 2.50
per cent Central Government 2023 Treasury
bond offered in early August. The issue was
undersubscribed, absorbing approximately
$560 million of excess liquidity.
The CBTT in its attempt to balance inflation,
excess liquidity and foster economic growth,
maintained the repo rate at 2.75 per cent.
Figure 2 illustrates the trajectory of local liq-
uidity levels over a trailing one-year period.
Local bond market
For the year thus far, two bond issues have
been auctioned on the local bond market. The
last issuance was that of the Government of
the Republic of T&T (GORTT) $1 billion bond.
This ten-year issue is due to mature in 2023
with a fixed coupon rate of 2.50 per cent.
Despite both the lack of fixed-income issues
and the excess liquidity in the system, the
result of the auction was an under subscription
of approximately 0.56 times, contrary to most
recent bond issues.
The main contributing factor was cited as
being the First Citizens Bank initial public
offering, which would have drawn significant
liquidity (in excess of TT$3 billion) during its
Local interest rates and outlook
As a result of the accumulation of excess
liquidity, local Treasury bill (T-Bill) yields
remain depressed. In September, the 91-day
T-Bill yield fell to 0.10 per cent from 0.14 per
cent, while the 180-day T-Bill yield rose 1
basis point to 0.22 per cent from 0.21 per cent.
TTD Money Market Rates averaged 1.37 per
cent in June (ranging between 1.80 per cent
and 1.00 per cent), while USD Money Market
Rates averaged 1.23 per cent (ranging between
0.97 per cent and 1.50 per cent). The recent
GORTT bond issue had little impact on medi-
um-to-long term interest rates.
As illustrated in Figure 2, the TTD yield
curve has remained fairly constant, with a
slight upward in the 15-20 year range. The
outlook for TTD interest rates remains muted.
Fixed income investor implications
The local fixed income environment remains
challenging to the investor. Ten-year Govern-
ment bond currently offer an investor around
2.50 per cent annualised return. When com-
pared to the trailing 12-month dividend yield
on the T&T Composite Index (TTCI) of just
over 3 per cent, the patient investor may be
inclined to favor equity investments over fixed-
Current bondholders, in the absence of
urgent liquidity needs, should maintain their
fixed income holdings.
In the current low interest rate environment
TTD investment opportunities which can pro-
vide attractive yields remain limited.
Investors should consider looking outside
of our local market to benefit from higher
credit quality assets and attractive yields. The
recent upturn in US bond yields, as a result
of the US Federal Reserve s intentions to taper
its bond purchases in the near future, has cre-
ated opportunities for investors with the capac-
ity to invest internationally.
In many instances, the international bond
markets continue to offer higher yields and
variety compared to what can be attained
locally. The investment grade USD emerging
market corporate bond space, within five- to
ten-year maturities, offers investors significant
yield pickup over similarly tenured local bonds.
That is to say, an investor can benefit from
extending his/her investment horizon to the
medium term and adopting a hold-to-maturity
Investors who may be concerned about a
possible depreciation of the TTD will find this
alternative attractive as a currency hedging
With the availability of a diverse fixed-
income menu to choose from, the prudent
investor would be well-served to consult with
their trusted investment professionals. While
bonds are typically less risky investments than
equities, they are not entirely risk free. Investors
should, as always, seek advice from qualified
investment advisers such as Bourse, before
making any investment decisions.
BG22 | COMMENTARY
BUSINESS GUARDIAN www.guardian.co.tt OCTOBER 2013 • WEEK TWO
Bourse Securities Ltd
This document has been prepared by Bourse Securities Ltd, for information purposes only. Any trade in securities recommended herein is done subject to the fact that Bourse, its subsidiaries and/or affiliates have or
may have specific or potential conflicts of interest in respect of the security or the issuer of the security, including those arising from (i) trading or dealing in certain securities and acting as an investment advisor; (ii)
holding of securities of the issuer as beneficial owner; (iii) having benefited, benefitting or to benefit from compensation arrangements; (iv) acting as underwriter in any distribution of securities of the issuer in the three
years immediately preceding this document; or (v) having direct or indirect financial or other interest in the security or the issuer of the security. Investors are advised accordingly. Neither Bourse nor any of its sub-
sidiaries, affiliates directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses arising from the use of this document or its contents or reliance
on the information contained herein. Bourse does not guarantee the accuracy or completeness of the information in this document, which may have been obtained from or is based upon trade and statistical services or
other third party sources. The information in this document is not intended to predict actual results and no assurances are given with respect thereto.
The recent upturn in US bond
yields, as a result of the US
Federal Reserve's intentions
to taper its bond purchases
in the near future, has
created opportunities for
investors with the capacity
to invest internationally.
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