Rates on Government of Jamaica Treasury bill dropped to 1.55 percent on the 30 days instrument in the latest issue auctioned on Wednesday, October 16.
The fall in rates follows applications for $2.2 billion of the Government of Jamaica Treasury Bills on offer and resulted in a notable fall in the average rates compared to the results at the September auction.
The October auction attracted $5.9 billion in bids, resulting in the 91 days instrument due January 2020, yielding an average rate of 1.54966 percent. The 182 days instrument due April 2020, produced an average rate of 1.64864 percent and the 273 days due July 2020, averaged 1.80915 percent.
In September auction resulted in an average yield of 1.74141 percent for the 91 days Instrument and 1.75085 percent for the 182 days with $4.6 billion chasing the $1.4 billion on offer. The previous 273 Treasury bill average yield was 2.00534 percent in August.
In October 2018, yields on the 182 days Treasury bill averaged 1.88 percent, then rose to 2.32 percent at the February 2019 auction and started to decline at the next auction in March.
Rates have fallen from 9.12 percent in December 2012 and 9.11 percent in March 2014 and are well below the lowest rates on record. The trend suggests that rates seem poised to fall further.
Treasury bill rates inched higher
Bids for Treasury bills for three offerings for the government of Jamaica that were auctioned on November 15 in the amounts of $700 million each resulted in modest increase in two and a slight decline in another.
The auction attracted $826,712,000 for the 91 days issue, $1,097,475,700 for the 182 days bill and $1.997 billion for the 283 issue. The bills attracted in less amounts than the previous auction in October by $895 million and $1.4 billion each for the other two issues.
Average Yield ended at 1.95181 percent for the 91 days instrument, up from 1.786 percent in October. The 182 days Treasury bill inched up to 1.98594 percent from 1.954 percent but the 283 instrument, slipped modestly, to 2.05676 percent from 2.064 percent.
Treasury bill rate almost steady at 1.71%
Interest rates essentially remained stable based on the latest Treasury bill auction that took place at Bank of Jamaica. The moved but was just modestly higher with a few basis points increase.
Applications were opened on Wednesday, at the Bank of Jamaica for $700 million Government of Jamaica Treasury Bills dated Friday, September 14, with maturity on Friday, December 14, 2018 for a 91 days duration. The Average Yield came out at 1.7093 percent with partial allotment at 2 percent. The offer attracted bids of $932,026,500. The latest T-bill rate comes against the back ground on the central holding their overnight policy rate at 2 percent.
At the auction in August, the 91 days Treasury bill cleared at an average of 1.694 percent with partial allotment at 1.756 percent. At that auction $1.863 billion chased after the $700,000 on offer. The 182 days instrument ended with an average rate of 1.878 percent with $2.53 billion going after the $700,000 in August.
2018 interest rate cut was big buy signal
Apartment complex in Kingston – Real estate values to benefit from low interest rates.
Declining interest rate is a huge buy signal for both stocks and real estate investments. If the decline in rates is expected to be prolonged then investors will swicth their investments to take advantage of opportunities elsewhere.
Last year this publication boldly advise readers that the drop in interest rates by the central bank was a huge buy signal for stocks and that investors should be piling into stocks and real estate. Some were skeptical, clearly unaware that there are really two major factors driving stock prices – interest rates and profits. Interest rates have fallen to the lowest levels on record, in Jamaica.
Many who consider the present values of stock to be ioverpriced not factoring the major cahnge the falling rates will have on valuations of both stocks and real estate. A few companies may overpriced currently, but not the vast majority. The incredibly low interest rates being enjoyed by many Jaamicans are not about to change substantially, any time soon. While the low rate of 1.7 percent on treasury bills reached in 2018 won’t last forever, it is expected that it will not go up too far from current levels of just over 2 percent, any time soon.
In May last year, Bank of Jamaica cut the overnight policy rate, by 25 basis points to 2.5 percent that along with a decline in short term Treasury bill rates at the same time.
IC Insider.com stated then, that the moves provided more ammunition for a big surge for Jamaican stocks. The piece went on to state that with a 15 percent fall in BOJ’s policy rate in 2018 so far, stocks are lagging behind, with an increase of just 6.6 percent for the Junior Market and 4 percent for the main market.
The fall in Treasury bill rates was far greater than the rise of the All Jamaica Composite Index, an indication of a lot more upside for stocks based on the downward movement of interest rates.
Investors seem then to be focusing more on profits in valuing stocks than on interest rates so far. That will change the article suggested. The fall in the overnight rate at that time, translated to a 9 percent rise in stock market prices, but rates seem likely to decline some more before settling off, providing more ammunition for greater gains in stock prices.
We stated that with the fall in interest rates, the PE of money is at the high end 40 times income and using corporate bond rates around 12 times, but the PE ratio should be more tied to Treasury Bill rates and that PE is now in 30 range but stocks are mostly in the low teens and below. IC Insider.com further stated that most investors did not appear to be paying much attention to the tsunami that was on the way that will see prices move sharply higher.
With just over five months of 2018 passing, investors have not only warmed to the fall in rates but many are not willing to part with their stocks. Late comers to the party will pay much higher prices than in May and June. Then the Junior Market was up 24 percent and the Main market 31.7 percent and rising. Technical reading of the market suggest that the Main market has another 25 percent run to make before probably cooling for a charge to 720,000 points on the All Jamaica Composite Index in 2019.
The fall in interest rates makes it cheaper to buy real estate with lower interest rates for each dollar borrowed. Additionally, investors will switch funds from fixed interest investments into stocks and real estate thus driving up their values.
Note that this is an updated version of an article posted last year after Bank of Jamaica cut their overnight policy rate.
