In an article from Prensa, Joseph Abbo discusses the cost of debt to Panama which reflects the strength of our economy and yet the flaw that can exist in “Efficient Market Theory”. Here is the article titled
A $100 bill on the Floor
We think its impossible that someone else wont find it and pick it up first before we can do it ourselves, but it doesn’t always work out that way…
In his opinion piece in Prensa.com, Joseph N. Abbo writes about what he believes is an example of the “Efficient Market Theory” having its flaws, noting the current situation in the Panamanian debt market, resulting from a comparison of yields from the Bono Global 2020 issued on the international markets and the Nota del Tesoro (Treasury Note) 2018.
Abbo says that “The first is trading at the record price of 119.1 and, therefore, at a cost of capital never before enjoyed by the Republic of Panama of 2.4% (the yield to maturity for buyers of this certificate).
On the other hand, the 2018 Treasury Note issued in the local market is trading at a price of 108.9% leading to a yield to maturity of 3.3% (the cost of capital of the Republic). Ironically, this reflects the fact that international investors trust more in the country’s debt repayment capacity than we do.
On the other hand, it makes much more sense to maintain a shorter-term instrument with superior performance at a longer term. Ie, 3.3% for 2018 compared to 2.4% by 2020. This would imply an “up-for-performance” of 38%! Both have the same issuer, same credit risk, same rating, same functional currency. Can you see the bill on the sidewalk? In the strict sense of the arbitration, the strategy would be to sell the Global 2020 and such funds in order to acquire the PANOTA 2018. But even without the Global 2020 available for sale, this opportunity can be exploited simply by buying the PANOTA 2018 before others turn up to take a walk around these parts.
This may well happen with the entry of international participants via the Global Depositary Notes program that allows foreigners to trade in local certificates, globally. “
Is the $100 bill still on the floor …?