Sovereign Analysis | Jamaica

Comparables and Recommendation

Jamaican Sovereign credits are currently rated as B+ by Fitch in April 2020 and S&P In October 2021 and as a result comparisons of yields and spreads were made between a universe of B-, B and B+ rated credits with similar tenors (within +/- 2.5 years of the JAMAN Maturity).

Based on the comparable bonds in the investable sovereign universe, JAMANS carry lower yields and tighter G-spreads than similar B+ securities. Compared to a universe of BB securities, two notches up from the Jamaica Sovereign bonds, the G-spreads and yields are more in line. While the economic outlook and expectations have been more favourable for Jamaica, compared to other B+ sovereign issuers as evidenced by the ratings agency’s positive outlook, there are also some idiosyncrasies somewhat unique to Jamaica that may justify the relative premium at which these bonds trade. In recent years JAMANs have traded at a higher price, and a lower yield than similarly rated credits, which in part is influenced by the natural demand for capital efficient collateral underpinning activity within the local money market. From Summer 2017 until the onset of the pandemic, JAMANs traded at a yield up to 1.5% lower than similar emerging market credits; following a deep selloff in 2020, JAMANs recovered to pre-pandemic levels in 2021. Additionally, market demand for JAMANs has been higher due to the belief that there is less default risk due to the confidence in the Jamaican Government’s track record of fiscal prudence, the expectation of an improving debt profile in the medium term, the ability to meet coupon payments as well as being able to roll over debt on relatively favourable terms. Much of the volatility seen so far in 2022 in the price of JAMANs has been in response to the more aggressive rate hikes executed by the US Federal Reserve and BOJ. However, in the past few weeks, buyers have gone back to these bonds as the inflation picture has become slightly clearer, and the market expectations for aggressive hikes at the remaining FOMC meetings this year have softened. The JAMAN bonds have traded in line with directional expectations and despite the spread across all three maturities examined being tighter than comparable credits, these low yields have been persistent over the past 5 years due to a variety of advantages surrounding the Jamaican sovereign. As a result, we have established a recommendation of MARKETWEIGHT for all three bonds..

Credit Average YTM (%) Average G Spread (Bps)
JAMAN 2028 5.89% 288.0
B Comparables 11.59% 921.3
B+ Comparables 8.68% 618.7
BB Comparables 4.94% 342.0
JAMAN 2039 7.01% 219.9
B Comparables 10.33% 724.0
B+ Comparables 9.52% 649.2
BB Comparables 4.15% 306.0
JAMAN 2045 7.18% 377.0
B Comparables 9.36% 622.0
B+ Comparables 8.23% 508.6
BB Comparables 6.84% 371.1

Sovereign Analysis | Jamaica

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