The notion that last week’s market blip might prompt investors to rethink their assessment of risk has been given a warm welcome – even the natural bulls will admit that attitudes had become a touch cavalier.
But despite the fact that there are some signs of a more cautious approach following the sell-off, elsewhere, it seems, investors’ appetite for risk remains unsatiated.
Jamaica has sold $350m of 32-year bonds, to nab a spot among the first issuers to issue bonds since the turbulence. Indeed, the Jamaican government upped the size of the sale, managed by Citigroup, by $100m from its original target.
The bonds were priced at 3.46 percentage points over Treasuries, or a yield of 8.12 per cent. The average spread of emerging markets debt over Treasuries narrowed on Thursday to 1.87 percentage points, as measured by the JPMorgan EMBI+ index.
Risk premiums on emerging markets debt were close to all-time lows before the correction last week – but even after spreads widened they remained at less than half their levels of two years ago.
Investors gobbled up the Jamaican offering. Dow Jones reports that the order book was five times over-subscribed, and the pricing was tighter than the initial guidance of 8.25 per cent.
Jamaica saw its debt levels rise substantially after a banking crisis in 2000 and net government debt this year stands at around 85.5 per cent of GDP, according to an S&P report from January. The agency assigns Jamaica a sovereign debt rating of B. In 2005, the UK wrote off over £6m owed by Jamaica.
“Due to excess global liquidity, especially the excess liquidity of European, Asian and North American buyers, the initial guidance of 8.25 per cent was very attractive, regardless of an under performing Government of Jamaica fiscal deficit,” Mark Croskery, the deputy general manager of the Jamaican brokerage house, Stocks and Securities told the Jamaica Gleaner. “Global investors are very hungry for a fixed income yield above eight per cent, which seems to be the psychological yield level that entices investors to jump in.”