Barbados is facing a growing “weight” problem in the wake of last week’s steep downgrade by Moody’s.
BARBADOS BUSINESS AUTHORITY has learnt that one of the region’s leading brokerage houses, Jamaica Money Market Brokers (JMMB), is advising 200 000 individual, corporate and institutional clients to stay clear of Barbados’ bonds.
The advice comes in the form of an “underweight recommendation” which investigations revealed has been place since September last year, but was reinforced following Moody’s action. In investment circles such recommendations usually mean investors should reduce their ownership of certain instruments or in some cases not buy them at all.
JMMB senior economist and sovereign research manager, Jermaine Burrell, communicated the news to investors in a “Barbados update” issued last Wednesday, two days after the triple point downgrade.
In September Burrell said Barbados’ fiscal challenges “clearly outweigh these positives at this time” and advised JMMB clients to “reduce their exposure and wait on the sidelines until the murky waters become clear”.
Then two months ago, the company repeated its “underweight recommendation”, effectively telling investors with Barbados bonds to reduce the amount they held and advising those who did not have any not to purchase.
Last week Burrell announced, “we maintain our underweight recommendation”, and he said Moody’s Barbados downgrade “was a confirmation of the general market sentiment as it regards bond yields”.
The economist said a major part of the problem for Barbados was its reliance on short-term debt and the related hands-off approach investors continued to have regarding Barbados’ long-term debt instruments.
“This lack of confidence on the part of investors is not good from a debt management perspective; governments want to issue long dated instruments with low coupons. When investors decide to go short, the government faces rollover risk in that they will likely have to refinance their debt at higher interest rates when they come to maturity in short order,” he said.
