Central Bank Governor John Rolle yesterday indicated the possible introduction of auctioning government bonds as a means of driving higher yields from Bahamas government registered stocks (BGRS).
Rolle was responding to a question on the possibility of rising yield rates as a result of BGRS now being traded on the Bahamas International Securities Exchange (BISX).
“The analysis is not clear cut on what would drive the yields, but there is a strong pattern of oversubscription to government stock issues with longer term maturity,” he told Guardian Business.
“That is normally a sign that yields could be lower. We anticipate an auction process in the future that would give us better outcomes.”
Currently the central bank auctions treasury bills, which are sold through a tender to provide short-term financing to the government.
Keith Davies, who is the chief executive officer of BISX, said the possible rate volatility that could result from publicly trading BGRS could be beneficial overall to the trading market.
“I would hope so, but not so much so that it is all over the place. Prices go up, prices go down. As it relates to government debt, if for example there is a particular government stock that’s trading at a certain percentage – say three or four percent – and people now want to invest and get the benefits of that four percent whereby the only thing available is three percent, they might be willing to pay more for that four percent, hence the price may go up. The inverse is also the case,” he said.
“So, the answer is yes, what you tend to see is that government stocks tend to hover around the value at which they were issued. But then depending on where the market is at – and this is where indicators are so very important – when you float it in the market, whether someone is prepared to pay more or less for a particular government stock, provides you with an indication of people’s perception of how the government is performing and their ability to pay back.”
On average government stocks yield approximately five percent, Davies said.