Suggestions that the yield was too generous on the Bermuda Government bonds sold this week have been described as "under-informed" by HSBC Bermuda chief executive officer Philip Butterfield.

HSBC managed the successful sale of the Global ten-year bonds which raised $500 million and was six times oversubscribed by investors who were attracted by the 5.6 percent fixed-rate annualised return. Government's interest payments on the bonds will total $28 million per year over the next ten years.

The Finance Ministry has stated that the bonds have locked in a low interest rates for their ten-year duration, while the Opposition United Bermuda Party has said the rate was too high compared to other AA-rated sovereign bonds and represented a bad deal for taxpayers.

"We have heard some under-informed statements about the pricing of the issue, but this is very competitively priced," Mr. Butterfield said yesterday in an interview. "The pricing is the most attractive [from the seller's viewpoint] of any comparable jurisdiction that has come to market in 2010."

The bonds, the first to be sold by the Bermuda Government on the international capital markets, were priced at 250 basis points (bps) above US 10-year Treasury bill rates.

In a statement issued after Tuesday's sale, the Finance Ministry said: "The transaction priced substantially through other investment grade regional countries, including approximately 50bps-plus through the Cayman Islands and 85bps-plus through the Bahamas."

HSBC Bermuda deputy CEO Richard Moseley, who was involved in efforts to attract investors on a "non-deal roadshow" that took in cities in Asia, Europe and North America, explained how the coupon rate had been calculated.

"Fundamentally, the rate is set by the market," Mr. Moseley said. "Rates have been extremely volatile in 2010 and that's a function of supply and demand and volatility in the market generally."

When the seriousness of Greece's fiscal problems came to light, for example, margins had moved out significantly.

The factors that would impact what the market would pay included the issuer's credit rating, the likely liquidity of the secondary market and how it compares to other similarly rated bonds, Mr. Moseley said. The fact that this was Bermuda's first venture into international bond markets was also significant, he said.

"Whenever you launch a new issue like this, it has to be priced at a slight premium," Mr. Moseley added. "That's the way the market operates."

The key to introducing a new issuer to investors was good communication, he added. HSBC had informed key investors they thought might be attracted to the Bermuda bonds and the Finance Ministry delegation who gave presentations about the Island during the roadshow had done it well, he said.

While investors in the US and Europe had been largely familiar with the Island, those in Asia and the Middle East had more to learn about Bermuda.

Government's total debt outstanding has soared in recent years and stood at $826 million at March 31, 2010.

Asked whether the trend of rising borrowings had been of concern to potential investors, Mr. Moseley said the question had arisen but that investors had largely been convinced by the delegation's answers.

"Government borrowings around the world have grown significantly," Mr. Moseley said. "But in absolute terms, Bermuda's indebtedness is still very low."

Mr. Butterfield said the Government's debt to GDP ratio was "relatively modest by global standards" and he added: "I think it's important for the citizens of Bermuda to know that Bermuda is a quality creditor and that is what this issue recognises."

Government has said that some ten percent of the investment in the issue was from Bermuda. The aim, during allocation of bonds to subscribers, had been to ensure that Bermuda investors (mainly financial institutions) got a decent share of the bond issue, without excluding big overseas investors who were dealing with Bermuda for the first time.

The bonds will trade on the Bermuda Stock Exchange.

Mr. Butterfield said the success of the sale was significant for Bermuda, which would now be known among major investors on the capital markets. "This positions us well, as a jurisdiction, to potentially go back to this same group of investors in the future," Mr. Butterfield said.

"That is significant, when you think about the infrastructure challenges we face, like the Causeway, the Airport and possibly the relocation of the docks, for example."

HSBC and Government had an ongoing relationship and regularly discussed financing options. Government was looking at options for refinancing its debt. The decision to sell bonds came after some of the global banking group's New York-based bond experts had met with Finance Ministry officials, Mr. Butterfield said.

HSBC helped the Cayman Islands to sell a ten-year bond issue last year.