The Bahamas’ bond performance is not unique, as the bonds of governments and entities around the world face similar downward trends, President of CFAL Anthony Ferguson said yesterday, however he added that The Bahamas’ situation is more acute.
Guardian Business reported yesterday that a handful of government bonds were performing well below their list prices on the secondary markets, according to the Frankfurt Stock Exchange.
But Ferguson said yesterday The Bahamas is not isolated in its position.
“Even US treasuries, which are considered AA; public bonds, mortgage bonds, government bonds, all across the world are down. To put it in context, over one trillion of value is down in the last six months,” he said while he called into Guardian Radio talk show Z Live yesterday.
“There’s no isolation to The Bahamas.”
Financial Secretary Simon Wilson said earlier this week that despite its challenges, he believes The Bahamas has sufficient capacity in the international markets, so long as it doesn’t return any time soon.
The government has no plans to seek financing internationally for the rest of this year.
Ferguson said in his view, The Bahamas’ challenges worsened in recent weeks due to an article published in The Tribune indicating The Bahamas had engaged financial services firm Rothschild and Co. to restructure its debt, which the government has said is not the case.
“Unfortunately, our bonds are pretty much junk status, there’s nothing we can do about that. The other thing is, interest rates have been going up in the last six to nine months. So let’s for a second hold the risk premium because of our rating, i.e. junk or near junk, constant for a second, holding the maturity constant for a second; whenever interest rates go up, by definition, unless it’s a floating rate bond, your bond price will go down. So then, yes, Bahamas bonds have declined over the last year. This just didn’t happen in the last few months,” he said.
“In the last several weeks it was accelerated, and the reason for that acceleration, whether we want to be objective or not, is principally in part to the appearance of an article in the paper indicating that the government had hired an entity to advise them on the debt structure. Now, anyone sitting some miles away from the Commonwealth of The Bahamas and they see that, the immediate conclusion is there will be a debt restructuring, there will be an IMF program. So what they do is they price the bond accordingly, they price it for the risk perceived, whether real or not. And this is where we find ourselves today.”
Furthermore, Ferguson said the country’s debt structure is less than optimal, given that the majority of Bahamas government debt is going to mature within the next five to eight years, which he said is a lot.
“The previous administration issued over a billion dollars, maturing in 2028/29. That was, I would suggest, ill advised and not the best long-term debt structuring of the country,” he said.
“I think we had sufficient liquidity in the domestic system that we didn’t have to go that much in the US market, that’s number one. Number two, you would have expected that when interest rates were at an all-time low that we would have gone to maybe 2040 or 2045, that we would have gone long term on the yield curve, as opposed to putting so much obligation on the front end of the curve or the earlier years of the bonds that The Bahamas has out on the market.
“I just can’t understand how anyone sitting around a table could think that that amount of bond issuance was in the best interest of The Bahamas, particularly when we had increased activities, storm-related challenges and where we were continuing to borrow to meet just the operating purposes of the country.”
Ferguson added that he believes with a good fiscal plan and a good strategy, “everything will be okay”.
“At the end of the day, you have to really go to the bond holders and tell them about what you are doing fiscally, and why the street is incorrect in their assessment of the credit worthiness of the country,” he said.
The Free National Movement (FNM) raised concerns earlier this week about the performance of the government’s bonds. Financial Secretary Simon Wilson however countered, stating that the predominant ill-performing bonds were issued under the Minnis administration.
Ferguson pointed out yesterday that in the last four or five years, The Bahamas has gone from holding roughly 20 percent foreign debt to nearly 50 percent. He said The Bahamas did not have to strain its posture with US dollar borrowing, as there has been sufficient liquidity in the domestic market.