The Central Bank is still seeing on average a net oversubscription to government instruments, despite the notion that some larger institutional investors have reached or will soon reach their limits in the government bond market, Central Bank Governor John Rolle said yesterday.
The latest treasury bill auction results for January 2023 show that the majority of the public offering of $286.9 million was subscribed, with just $37.5 million undersubscribed.
“I think it’s always something for people to surmise that institutional investors are at varying positions in terms of their posture toward government debt. But on the whole we continue to see the government
successfully raising the amount of funds that it has been trying to raise in the domestic market. What sometimes impacts the dynamic and is not often appreciated is that there is a cash smoothing cycle involved in that process. To the extent that the government sometimes uses the domestic market to bridge financing that will ultimately be sourced in US dollars,” he said during the first quarterly press briefing with the media for the year yesterday.
“So in most budget years you will often see overweighting of borrowing in the domestic market for a fraction of the fiscal year. but by the end of the fiscal year the balance is restored, and in restoring the balance it is often the case that some of the foreign currency borrowing pays down the domestic break financing that has occurred earlier in the year.
“So, I think some of that is happening now. We haven’t seen any meaningful amount of foreign currency borrowing taken place by the government earlier in the fiscal year. Those are still in the plans and once those are activated you will see an evening out over the remainder of the fiscal year, and it shouldn’t be immediately viewed as if the institutional investors are hesitant to take on government debt.”
Earlier this month, experts in the investment space said it was imperative that the government look more to retail investors to achieve some of its financing goals.
In November, the Central Bank and the government announced that they were working toward the introduction of a savings bond scheme, targeting retail depositors to encourage them to invest more in the available medium- and long-term domestic bonds of the government.
Rolle said that savings bond is expected to come on stream over the course of 2023.
“We are very close to sharing with the Ministry of Finance some of the concluding work that we have done on the structure of that facility. It is targeting smaller individuals and retail investors who can take a disciplined, long-term, incremental approach to savings. This is primarily focused on encouraging savings and giving smaller investors access to the kind of returns that institutional and larger investors receive in government instruments,” he said yesterday.
“It will not be conceived on any level as a stop gap measure for the government’s overall financing needs. This is likely to have a medium to longer term impact in terms of government debt holdings. Any other meaningful progression in terms of what’s happening in the government bond market is going to happen from institutional and larger sophisticated investors, along with the traditional places.”
The government is seeking to raise $1.7 billion in financing this fiscal year. It is seeking to source approximately $996.1 million in Bahamian dollars and around $764.7 million in foreign currency.