Home' Trinidad and Tobago Guardian : January 9th 2014 Contents Today, we at Bourse, take a look
at the local financial system,
with respect to inflation, liq-
uidity, the interest rate envi-
ronment and interest rate out-
look. We review the local bond
market, bringing to light its performance for
2013 and implications for investors into 2014.
Central Bank reports:
According to the Central Bank (CBTT),
headline inflation - as measured by the Retail
Price Index - increased to 4.4 per cent year
on year (y-o-y) in November, from 2.7 per
cent in October. This compares favourably
with the rate which stood at 8.1 per cent in
November 2012. Overall, for the year there
has been a steady decline in the rate which
began in January at 7.2 per cent and is currently
4.4 per cent.
Food inflation, which is the main driver of
headline inflation, recorded a single digit rate
for the fifth consecutive month, albeit an
increase to 7.3 per cent y-o-y in November
from 3.7 per cent in October. This is an
improvement from last year where, in May,
food inflation peaked at 28.3 per cent resulting
in double digit headline inflation of 12.6 per
Core inflation (inflation ex-food prices)
remained constant at 1.9 per cent in November
2013 after a substantial decrease from 2.9 per
cent in September.
With inflation having abated, real returns
(increases in purchasing power) are slowly on
the path to positive territory.
High liquidity levels were again prevalent
in the financial system throughout 2013. Liq-
uidity on November 22 rose to approximately
$7.8 billion from $7.3 billion at the start of the
month. In comparison, excess liquidity levels
in November 2012 were $3.3 billion.
According to the CBTT, large net domestic
fiscal injections, coupled with weak credit
demand contributed to the build-up of liquidity
levels in the financial systems. This occurred
despite the issuance of the three TTD sovereign
bonds throughout the year.
Notwithstanding excess liquidity levels, the
bank reiterated its stance to provide an accom-
modative stance against the backdrop of rel-
atively stable inflation and tepid growth and
maintained the repo rate at 2.75 per cent. In
2014, the Central Bank s liquidity management
framework is expected to be enhanced by the
recent approval to increase the borrowing
limits under the Treasury Bills Act and Treasury
This will facilitate the further use of open
market operations to withdraw liquidity from
the banking system.
For the year, three bond issues were auc-
tioned on the local bond market. In May, the
Government of the Republic of T&T (GORTT)
auctioned a TT$1 billion bond which was a
seven-year issue due to mature in 2020 with
a fixed coupon rate of 2.6 per cent. The issue
was oversubscribed approximately 2.75 times,
with the total bids received summing to $2.75
billion. Due to the oversubscription; the bond
was allotted at a premium, with an issue price
of $104.23 per $100.00 face value and a yield
to maturity of 1.95 per cent.
In August, the GORTT auctioned a TT$1
billion bond which was a ten-year issue due
to mature in 2023 with a fixed coupon rate of
2.5 per cent.
The bond was undersubscribed, with total
bids amounting to$895 million. It was allotted
at par with a yield to maturity of 2.5 per cent,
but resulted in only $560 million of bids being
The most recent issue was that of the
National Insurance Property Development
Company Ltd (Nipdec) TT$1 billion bond. This
16-year issue is due to mature in 2029 with
a fixed coupon rate of 4.00 per cent. This
issue was 1.5 times oversubscribed and as a
result absorbed approximately $1 billion of
excess liquidity, albeit on a temporary basis.
The bond was allotted at a premium, priced
at $102.38 per $100.00 face value with a cor-
responding yield to maturity of 3.80 per cent.
With the accumulation of excess liquidity,
local Treasury bill (T-Bill) yields remain
depressed. In December, the 91-day T-Bill
yields decreased to 0.06 per cent from 0.11
per cent in the previous month. The 180-day
T-Bill yields have stayed at 0.15 per cent. TTD
Money Market Rates averaged 1.27 per cent
in November (ranging between 0.92 per cent
and 1.70 per cent), while USD Money Market
Rates averaged 1.14 per cent (ranging between
0.81 per cent and 1.40 per cent). Figure 3
shows a comparison between the TTD Yield
Curve, USD US Composite BBB BVAL, Average
TTD Money Market Rate and Headline Infla-
tion. The graph shows the increasing spread
between TTD bonds and USD bonds starting
around the five-year mark. It also shows the
return needed in order to beat inflation.
In a low interest rate environment, TTD
fixed income investment opportunities and
attractive yields are likely to remain limited
in 2014. Investors may be better off looking
outside the local market to benefit from higher
quality assets and attractive yields.
In many instances, the international bond
markets continue to offer higher yields and
variety compared to what can be attained
In our analysis, we continue to find that
investment grade USD emerging market cor-
porate bonds in the seven- to 15-year space
offer 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 approach.
Investors who may be concerned about a
possible depreciation of the TTD will find this
alternative attractive as a currency hedging
strategy. While bonds are typically less risky
investments than equities, they are not entirely
risk free. With an incredibly diverse fixed
income menu to choose from, the savvy
investor would be well-served to receive feed-
back from professionals.
Alternatively, the trailing twelve month div-
idend yield of the T&T Composite Index (TTCI)
is just over three per cent, which means the
investor may be inclined to favour local equity
investments over fixed income securities.
Investors should, as always, seek advice from
qualified investment advisers before making
any investment decisions.
BG16 | COMMENTARY
BUSINESS GUARDIAN www.guardian.co.tt JANUARY 2014 • WEEK TWO
Bourse Securities Ltd
year in review
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.
In a low interest rate
environment, TTD fixed
attractive yields are likely
to remain limited in 2014.
Links Archive January 8th 2014 January 10th 2014 Navigation Previous Page Next Page