JPS recently announced that it would call (i.e. “repurchase”) its 11% 2021 bond at a price of 101.83 from bondholders on March 5, 2019.   This means that in addition to the interest earned for the period, bondholders will receive their principal of US$101.83 for every US$100 of face value invested.  The bond is widely held by local investors. What will you do with your proceeds?  Today we look at the history of the bond and some alternative options in the financial markets.  

Your savings in the bank are losing money every day. Keeping your savings in cash is one of the fastest ways to burn a hole in your net worth. This applies to many repos as well. By ignoring the rate of inflation or accepting sub par returns on your investment, you are reducing the future value of your investments. It’s also important to note that interest rates on lower risk USD investments are now higher than interest rates on JMD investments.

A “fallen angel” in finance is a rated entity which once carried a high credit rating (investment grade) and displayed exceptional performance, but has since experienced sustained declines in ratings culminating in the loss of its investment grade status.  Barbados’ financial woes over recent years have placed its debt in that demeaning category and future prospects for the debt also appear to be grim.

When you hear the term “junk bonds” you might be inclined to think that they are worthless; but don't let the term fool you or scare you away from these securities. Despite their name, junk bonds can be valuable investments for informed investors and may actually have a place in your portfolio because of their often higher yields. However, be warned- their potential high returns come with the potential for high risk.

Spotlight on Exchange traded funds

What Are Bonds? 

A bond is an IOU in which you, the investor, agree to loan money to a company or government or other known entity - called the Issuer - in exchange for a specified rate of interest over a fixed period of time.  Its opposite is a stock, which represents ownership in an entity and is worth only what someone else is willing to pay for it. 

Key takeaways 

• Check the credit rating of the issuer of your bond before you buy 

The buying and selling of bonds can be a very simple and straightforward process, but there are a few features that must be understood regarding the calculations.  

Face Value: