Oran Hall | Bond market liquidity

Securities that are liquid, that is, easy to buy or sell, are generally the most attractive to investors. Although some trade readily on the over-the-counter market, securities listed on a stock exchange tend to be more liquid or tradeable.

The listing of corporate bonds on the Jamaica Stock Exchange (JSE) is making them more liquid while giving the bond market an opportunity to develop, but how strongly it does so depends on the emergence of more regular listings.

When Barita Investments Limited listed its bonds on the Jamaica Stock Exchange recently, it joined Mayberry Investments Limited, Mayberry Jamaican Equities Limited, and Victoria Mutual Investment Limited – like itself, entities operating in the investment industry – as issuers of bonds which were eventually listed.

Listing has some clear advantages: the securities get visibility, prices are determined in a more transparent way, settlement is done more effectively, interest and principal payments are assured as long as the issuers do not default, and the security of the instruments is assured as they are in electronic form. Nonetheless, they still retain their ability to be used as collateral against loans.

The market still has a far way to go as it only lists corporate bonds and there are only 14listings. I expect the situation to change dramatically when the Government of Jamaica lists its bonds and when more corporations see the benefits of using the market to raise debt capital.

Of course, listing any security puts more onus on issuers to abide by the rules of the stock exchange and while it means the incurring of costs and closer attention to governance matters, the big benefit is that investors are generally better able to respond to any call from issuers, who are able to raise capital without giving up any level of control.

There are 14 bonds listed on the Jamaica Stock Exchange – 13 fixed-rate and one variable-rate, six secured and eight unsecured, and all are Jamaica dollar-denominated. But there is a glaring absence of long-term bonds as can be seen from the following: one maturity in July 2025, four in 2026, five in 2027, one each in 2028, 2030, 2032, and 2035. At best, most were issued as medium-term bonds.

Having such short terms ensures that prices remain relatively stable, aided somewhat by the coupon rate which varies from a low of 9.25 per cent to 12 per cent. Although the issuers are financial institutions of good standing, it is worth noting that there are more unsecured issues than secured eight compared to six. Yet, the market does not seem to distinguish between them in pricing them. From the trading report for July 2, 2025, none of the recently listed Barita bonds have traded, of the others, one traded at a discount, four at a premium, and four at par – face value. The fact that some traded at a premium is due primarily to the decline in the level of interest rates, which creates a situation in which they sell at a price whereby the buyers get an overall yield that reflects current market yields.

I note with interest that the variable-rate instrument that’s due to mature in 2027 is the one with the highest market price; one advantage of such bonds is that their prices tend to fluctuate less than those of fixed-rate bonds because the interest they pay is generally in line with current rates – and sometimes better.

A big advantage that redounds to bond holders is that when interest rates fall, their current income – interest – is higher than current rates, which puts them in a position to sell at a premium if it becomes necessary to sell, or if they want to capitalise on the opportunity to make a capital gain.

This should not be done just to make the gain. It is not prudent to do so if the funds will be used in a way that ultimately causes the investor to be worse off.

For the bond market of the Jamaica Stock Exchange to become more buoyant, more listings are needed to replace the issues which will mature, most, as we have seen, are at the very short end. New issues must exceed the maturities if the market is to grow. Longer-dated issues must also emerge, but interest rates must settle first, and preferably below current levels.

The listing of government debt instruments is going to be the game-changer. When they become more visible, investors will more readily embrace them, and the market will get deeper and become more vibrant.

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.finviser.jm@gmail.com