Bloomberg Business published an article as Belizeans voted on election day, indicating that Belize’s ‘Superbond’ sank its lowest since 2013, according to JP Morgan Chase and Company’s Emerging Market Bond Index (EMBI).
The ‘yield’ on the Superbond rose to 10 percent at 2:50 p.m. Tuesday New York time, the report said. According to Elvin Perez, managing director at the financial advisory firm, Legacy Fund Ltd. yield can be understood as “the relation between the price people pay for the bond and the interest income the bond generates.”
Perez also explained that the inverse relationship between the yield and the price causes one to fall when the other increases. Therefore, he said, the spike on the bond’s yield return is an indication that the price has fallen. This, he further explained, could have been caused by a number of factors.
One factor that could have caused the yield return to spike was the election, the article noted. The general elections may have prompted creditors to perceive a risk of instability, resulting in the increase of 56 ‘basis points’ on the yield return.
When creditors perceive risk, they demand higher premiums on the yield return.
Perez however, believes that the fall on the bond was caused by a global perception toward emerging markets. Perez describes emerging markets as “economies that are moving toward having a developed economy”.
Belize, among countries like Brazil, Russia, India and China, is known as an emerging market prompting investors to perceive more economical risk and buy bonds at lower prices, causing the yield return to increase. Perez compared it to buying a car: “If you think the car has more risks, you would want to pay less for it”, he said.
How does it affect the Superbond and the economy? According to Perez, the yield increase is important for outside investment holders because they stand to lose on the price they have paid for the bond.
For Belize, however, the rise in the yield does not affect or influence the bond, as the amount of the bond and interest will remain the same. It would only affect the economy if the government borrowed from the bond market, but Belize does not have access to that financing sector, he added.
Belize has defaulted on bond interest rates twice; once under the Said Musa People’s United Party (PUP) administration and again under the Dean Barrow United Democratic Party (UDP) administration, causing GOB to regroup creditors and refinance the terms on both occasions.
According to the 2015 budget speech the Superbond comprises 48 percent of Belize’s foreign debt.
Belize’s Superbond was an effort by the Musa administration to restructure the foreign debt and make it more manageable.The maturity date for the Superbond was previously due in 2028, but as part of a refinancing plan in 2013 by the Barrow administration, was extended 10 more years, until 2038.The Reporter