The Jamaica Stock Exchange lost $5 BILLION dollars in one day on Monday! It’s almost as low as it was when COVID just hit. What the heck is going on?

Why is everyone running from the stock market right now? It actually has nothing to do with the value or performance of the companies listed on the stock exchange.

This is an – it’s not you, it’s me kinda breakup.  The JSE did nothing wrong.  Investors just found something better.

One of those somethings is probably “government paper”.

The Government of Jamaica recently issued $35 billion in bonds at interest rates as high as 12.25%, and they’re expected to issue some more very soon.

Now bonds are when the Government borrows money from you!

Remember I told you recently that part of the way the Government plans to pay for its one trillion dollar budget, is by borrowing. Well, the Government doesn’t only borrow from banks. It also issues bonds that you can buy.  So you can actually lend your own money to the government, and they’ll pay you interest.

Shauna-Kay Kelly Reid, who’s a trader at JMMB, told us about the government’s new offer last night on Taking Stock.

“There’s a lot of liquidity in the market as a result of FR2023 bond maturing in mid-March. That put a lot of liquidity in the market,” she explained.

“The GOJ bond paid out $43 billion. They came to market with about $35 billion worth of bond and what we saw happening is the the market decided we’re not interested in these bonds at this time,” she added.

See guys, this is why I keep telling you to watch Taking Stock. This is the show the real money people watch to spot the opportunities.  Check out the full episode on my YouTube channel.

Watch the video here

Now notice that Shauna Kay did say that there wasn’t much interest in the government’s new bonds, so that’s probably not the full story.  

Actually, let me give you a quick history lesson here about government bonds.

There was a time when a lot of Jamaicans got very rich by lending their money to the government.  This was because the government was offering exorbitantly high interest rates – all 30-40%. Why so high?  Because nobody trusted the government to pay them back, so if they were gonna take that risk, there better be a high reward.

This is partly how Jamaica ended up so badly in debt in the early 2000s. See most people think that Jamaica’s debt problem is because we owe the IMF and World Bank and a bunch of international people.  But actually, most of Jamaica’s debt was owed to Jamaicans who bought government bonds.

So when the government eventually defaulted on those bonds because they couldn’t pay them back, it’s a lot of regular people who invested in them, who got burned.  But then again, they knew the risk.

So if you’re considering investing in government bonds, you have to ask yourself, do you trust the government to pay you back when they say they’re gonna pay you back?  Is 10 or 12% enough of a reward to take on that risk?  Bear in mind, the government just paid back $43 billion in full and on time in March, and they’ve been doing so for the past few years.

Anyway, back to what’s going on now.  Usually when there’s a large sell off in the stock market, it’s either out of fear and panic such as COVID, OR it means people are pulling out their money to prepare for some other opportunity that’s coming up.

But put in context, a $5 billion fall in the stock market at the same time as the government is issuing new bonds, in an environment where people are seeking more conservative investments, is probably something to be expected.

Additionally, other major players have also been issuing bonds recently.  NCB just did a bond that’s paying almost 12% interest.

Bonds are generally considered safer than stocks, and with interest rates going higher and higher, it’s giving people an incentive to move from stocks into bonds.

This is why we pay keen attention when the Bank of Jamaica issues its report every month.  And The Analysts on Taking Stock have been telling you for months, that with interest rates going up, you should consider moving into bonds.

Because remember, when interest rates go up, it has two different impacts.  For most people who are consumers, it makes borrowing more expensive.  So your car payments are going up.  Your mortgage payments are going up. 

BUT if you’re an investor, you can actually take advantage of higher interest rates because you can now lend your money to the bank or to the government, or to whoever is issuing a bond, and earn a higher return.

So I hope this helped to explain what’s going on in the market right now.  

Subscribe to our newsletter at kalilahreynolds.com/newsletter to get more information like this straight to your inbox.