Q&A with CMMB securities

Q. What is a Eurobond and what role would it play in an investment portfolio?

Vernon, Santa Rosa

A: A Eurobond has nothing to do with the currency of the European Union, the Euro. This is a common misconception. Rather, a Eurobond is a bond raised in a currency for a borrower living outside of the currency’s home country. For example, the Governments of the Caribbean can raise bonds in US dollars on the international market. These are referred to as Eurodollar bonds as they are bonds denominated in US dollars raised for borrowers outside of the United States, namely Caribbean Governments. Therefore if the Government of Trinidad and Tobago (GOTT) raised a bond on the international market in US dollars it is called a Eurodollar bond.

Alternatively, if the Government raises funds in Yen on the international market the bond would be referred to as a Euroyen bond. Or if the Government raises sterling on the international market the bond would be referred to as a Eurosterling bond. Eurodollar bonds are the ones applicable to investors in Trinidad and Tobago since our markets in Yen and Sterling are small. Eurobonds are very similar to normal bonds. They are characterised by semi-annual interest payments, lump sum principal payments at maturity and terms to maturity greater than ten years. Hence a GOTT Eurodollar bond would be applicable to a corporation or individual looking for a safe, long-term US dollar investment.

Q. What’s a Money Market Account and what’s the difference between a US Money Market Account and a TT dollar Money Market Account? 

Fazaad, Diego Martin  

A: The best way to understand what a Money Market Account is would be to compare it to a certificate of deposit. A fixed deposit is where a fixed amount of funds are locked in for a period of time (30 days, one year, two years etc.) and pays a fixed rate of interest. The funds on a fixed deposit are insured up to TT$50,000 by Deposit Insurance Corporation. On the other hand, a Money Market account can be initially set up and then added to, or withdrawn from, on an ongoing basis and pays a floating rate of interest depending on market conditions.  In a Money Market Account all the funds (not only TT$50,000) are secured against a pool of assets.

The mix of assets can vary from Government bonds to corporate bonds depending on the account’s investment policy. The rate on a Money Market Account is higher than a fixed deposit to compensate for the fact that the rate of interest can vary up or down. Both instruments act to keep principal secured.  The difference between a TT dollar and US dollar Money Market Account is in the currency invested. In a US account, US dollars are invested and the rate paid would be lower than on the  TT variant. This is because the US dollar is a stronger currency. The assets on which US dollars are secured against would also be denominated in US currency. 

Disclaimer for Articles:

“All information contained in this article has been obtained from sources that CMMB believes to be accurate and reliable. All opinions and estimates constitute the Author’s judgement as of the date of the article; however neither its accuracy and completeness nor the opinions based thereon are guaranteed. As such, no warranty, express or implied, as to the accuracy, timeliness or completeness of this article is given or made by CMMB in any form whatsoever. CMMB and/or its employees or directors may, where applicable, make markets and effect transactions, or have positions in securities or companies mentioned herein. Neither the information nor any opinion expressed, shall be construed to be, or constitute an offer or a solicitation to buy or sell.”