Interest rates on the last government of Jamaica Treasury bills averaged 8.27 percent on the 182 days instrument in November, the highest level since December 2012 at 9.12 percent.
The rate is well over the trend since 2013, which suggests it should be just over 3 percent on a longer term. In 2013, the rate did not remain at its peak for long and continued decreasing gradually. It rose again to 9.11 in March 2014 for a brief period and fell to 6.99 percent by January 2015 and moved gradually down to under two percent by 2018.
While the Bank of Jamaica has only recently pushed the Overnight rate to 7 percent the 182 days, Treasury bill rates were around 8 percent from April this year when the average was 8.46 percent and moderated slightly downwards since an indication that the market has determined that these rates are at or close to the peak. The decline in rates should start in the first half of 2023 and could adjust downwards gradually, as was the case in 2014.
The attached chart shows the trend-line slopping from the left side of the chart and reaching around two percent, with the current rates being well over trend, an indication that the recent hike since last year is not sustainable and could start to decline not too long from now with inflation rate now closer to 7 percent and falling.
Whether Jamaican interest rates?
BOJ now paying over 4% on CDs
Interest rates rose to 4.17 percent in the latest Bank of Jamaica 30 day CD offering of 12 billion on Wednesday last week, up from 3.28 percent on Wednesday, October 6 and well over the new overnight rate of 1.5 percent.
Having settled at a low of just over 0.5 percent for the past two years, the latest rate marks a significant shift in a very short time frame, a development that investors should watch carefully.
At the recent auction, the central bank received 53 bids amounting to $14 billion for $12 billion on offer, 46 bids were successful up to 5.27 percent and came after BOJ increased their overnight rate to 1.5 percent. The total nominal outstanding amount for the 30-day CDs $46.5 billion, similar to the week before, but well above the $35.5 billion at the end of July.
At the same time, the Government of Jamaica Treasury bill auction on Wednesday, October 10, rates on the three tenors on offer ended with an average rate of 2.165 percent for the 90 day offer that attracted $2.246 billion for the $700 million on offer. The 181 days offer saw $1.974 billion chasing the $700 million offered and resulted in an average rate of 2.75 percent and the 273 days T-bill pulled in $1.865 billion for $800 million offered and resulted in an average rate of 3.69 percent.
The range for yields for full allotment is 1.45 percent to 2.85 percent for the 91 day T-Bill, 1.5 percent to 3.05 percent or the 182 days T-bill and 2.41 percent to 4.75 percent for the longest dated bill.
On Thursday, October 21, the central bank will auction $4.5 billion 365 days Certificate of deposit.
T-Bill plunged to lowest rates on record
In the latest Government of Jamaica Treasury bill (T-bill) auction, for April, rates hit their lowest level on record. The fall reversed the sharp uptick in rates at the March auction, with the average rate for the half-year instrument then hitting 2.01 percent and the three months 1.87 percent.
At the April auction, T-bill rates dropped to 1.08 percent for the 91 days Treasury bills, while the 182 days instrument ended with an average of just 1.05 percent. The rate for the 273 days instrument, averaged 1.73 percent.
In March, the demand dropped sharply to just $1.05 billion, for the half T-bills, the amounts applied for falling from $2.32 billion to $1.41 billion, in April, $2.46 billion chased after the $700 million on offer for the 90 days instrument, $2 billion went after the 181 days note and $1.5 billion chased down the 270 days bills. In each case, the GOJ offered $700 million to the public.
Interest rates rise sharply in March
Government of Jamaica Treasury bill (T-bill) rates reached their highest level since August last year when the average rate for the half-year instrument touched 2.01 percent and the three months hit 1.87 percent.
At the March auction, for T-bill, rates moved up from 1.337 percent in February to 1.85 percent in March for the shorter-term treasury rate and from 1.387 percent for the 192 days to 1.796 percent. The rates are coming from a low of 1.252 percent and 1.453 percent, respectively in January this year.
In January, $3.12 billion chased after the $700 million offer for the 91 days offer, in March the demand dropped sharply to just $1.05 billion, for the half T-bills, the amounts applied for fell from $2.32 billion to $1.41 billion.
On February 7, Bank of Jamaica (BOJ) 30 days CD rates averaged just 1.17 percent as $15.64 billion chased after $10 billion offered by the country’s central bank. In the March 16 auction, the average rate jumped to 3.51 percent, with the highest being 4.5 percent for $100 million as investors placed just $7.66 billion for the $8 billion BOJ offered. BOJ also offered CDS on March 11, amounting to $10 billion, with $14.15 billion going after it at an average yield of 2.78 percent.
The rise in interest rates occurs at a time of falling liquidity and the largest intake of taxes for the financial year by the government. Historically, March is the month with the highest fiscal surplus for the year as the intake of taxes is the highest. The result of the increased inflow of taxes drains liquidity from the system. This year, the situation is worsened by the $25 billion initially drained from the financial market by the Initial public offer of Trans Jamaica Highway. With the government planning to pay $73 billion to reduce the public sector debt, investors can look forward to increased liquidity before too long.
PE ratios continue to rise
Treasury bills rates bottomed and have moved back closer in line with the Bank of Jamaica’s overnight rate of 2 percent.
IC Insider.com is forecasting a further increase in T-bill rates to move above 2 percent, this could happen with the December Treasury bill auction.
In the mean time the main market of the Jamaica Stock Exchange has moved on the new record highs, with NCB Financial being the primary mover with the stock closing at $159.05 on Friday. The Junior Market that peaked at an all-time high in October has pulled back with no new price sensitive news to encourage aggressive buying.
The above developments are happening as the PE ratio of the market continues to inch higher. The ratio climbed slowly until June but moved much sharper thereafter, to better reflect the sharp fall in interest rates. The recent inching up of Treasury bill rates appears to have slowed the upward movement in the average PE ratio of the over all market that sits just under 16 currently. The average PE is now ahead of the longer term trend that goes back to 2013, but well below the trend, from late 2015 that suggests that the average PE is headed for 18, that will require a 15 percent rise in stock prices to get there. December is usually a bullish month and so the PE of 18 may be reached by year end or early in 2019.
Treasury bill rates at 4% level
Treasury bill rates now hovering around 4
Rates on 91 days Treasury bills fell below 4 percent for the first time in decades and the 182 days issue slipped to sit just above 4 percent at the mid-January Auction of Government of Jamaica Treasury bills.
The average rate for the 91 days instrument fell to 3.99 percent from 4.18 percent in December and the 182 days issue now sits at 4.16 percent down from 4.63 percent in December and is in line with IC Insider.com forecast that the rates would hit 4 percent during the current quarter. The Central Bank announced a 25 basis points cut in their overnight rate to 3 percent on Wednesday.
Treasury bill rates continue to fall
Treasury bill rates in Jamaica continues to fall with the two latest issues of 91 and 182 days duration declining with the 91 days instrument falling to an average of 4.176 percent while the 182 days fell to 4.635 percent.
The December decline, is the eight time in 2017, that the rates have fallen. Two amounts of $600 million each were offered to investors and $4 billion chased after them, with the longer dated issue attracting just over 56 percent of the total. The trend suggests that rates on the longer term instrument should fall below 4 percent in early 2018.
The effect of downward movement of rates goes much further than just the money market. Stocks and real estate investments are set to rise in value as a result of the continuing fall in rates and mortgages rates should fall as well.
Treasury bill rates heading to 4%
Treasury bill rates dropped sharply again in the latest Government of Jamaica’s October auction. Rates on the 182 days instrument, fell 34 basis points to 5.11 percent having dived 53 basis points to 5.45 percent in September.
The 91 days Treasury bill rate, fell 40 basis points from 4.98 percent in September to 4.58 percent in the latest auction. In September the rate dropped 51 basis points. The attached chart shows the resistance levels going back to early 2016 just below the 6 percent level that lent support to the rates until June when rates started to drift slowly downwards and was decisively broken in September on its way to 4 percent.
Shaw must cut taxes in 2018
Image courtesy of cooldesign/FreeDigitalPhotos.net
All available data since 2016 show that the Government of Jamaica never needed to raise taxes to cover the lost revenues from the hiking of the threshold to $1.5 million, as revenues continue to run well ahead of forecast in the last fiscal year and for the current one.
IC Insider.com gathers that while the government never wanted to increase taxes to cover the cost of the increased threshold, as data suggested that there that the lost revenues would be covered by increased revenues, the International Monetary Fund insisted that they had to increase taxes to cover the lost revenues.
With revenues running well ahead of forecast for two years running its time government start planning to cut taxes in next year’s budget forecast.
Last fiscal year revenues were $8.6 billion better than projected, just about $2 billion short of the cost of the threshold but expenditure was $5 billion lower than planned for a net improvement of nearly $14 billion, much greater than the revenues foregone.
Collector of Taxes office, Constant Spring, Kingston.
After a mere 5 months of the fiscal year to August, the Ministry of Finance has amassed a tidy $14.6 billion more than forecast for the government coffers. If the trend continues by the end of the fiscal year we should be looking at $30 billion more than budgeted and would be more than the taxes foregone by the increase in the tax threshold.
In two years, government has amassed excess tax revenues of $45 billion and assuming there were no major adjustment in the tax threshold, to $70 billion.
The increased revenues over the past three years are well ahead of the increase from new taxes levied and after taking in account a major reduction in PAYE contribution in 2016-17. Not only are the inflows running well ahead of the prior year for the last two and a half years, increased revenues are well above forecast. Two factors are contributing to this buoyancy, improved economic activities and increased taxes, helped by strong increases in corporate profits that is pushing revenues higher.
GOJ revenues inflows have been extremely buoyant since the drop in budgeted inflows for the fiscal year to March 2015. While 2015 fiscal year came up short of budget by $16 billion with revenues at $412 billion, 2016 came in with $50 billion more than the out turn for 2015 at $456 billion and 2017 with total revenues of $514 billion was $52 billion more than for 2016.
Interest cost ended $2 billion lower than projected to August this year and should and the cost should decline even more going forward, with the recent cut in Treasury bill rates by over 50 basis points.
The government gave up $10 billion in payroll taxes last fiscal year and an additional amount, estimated at $13 billion this fiscal year but the revenues are still well ahead of forecast.
With the buoyancy in tax revenues and lower interest cost on loans the government should have far more room to reform taxes in 2018 and reduce taxes as well as improve allocations for social spending.
Tbill rates in sharp drop
Interest rates are falling with the Treasury rates falling sharply in the latest auction last week.
Rates fell by 53 basis points for the 182 days Treasury bills, the most since June 2014 when it fell by 57 basis points.
The average rate fell to 5.45 percent, the lowest level since 2012 and broke decisively, the resistance level at just under 6 percent and seems set to reach just around 4 percent before too long. Investors pumped $2.63 billion into the auction for the $600 million on offer. At the same time $3 billion chased $600 million offered for 91 days, with the average rate falling to 4.985 percent from 5.49 percent in August. The decline for the 91 days instrument, is the third fall since the rate rose modestly in June, to 5.77 percent and the sixth monthly decline for 2017. The fall in the rates better aligns them with the central bank’s new overnight reference rate.
