Bond investors can’t get enough of Mexico

by Adam Thomson
Financial Times

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The lesson that doing your homework, and doing it well, pays off has been somewhat of a theme for Mexico this month. That was the main message of Richard Fisher, president and chief executive officer of the Federal Reserve Bank of Dallas, when he used a recent visit to the country’s stock market to lavish praise on Mexico’s handling of its public finances.

And it was the underlying theme of Monday’s US$2bn dollar-denominated bond issue, Mexico’s second outing to the international markets this year.

The noteworthy part of the issue was not its 32-year maturity, which would have been impressive enough just a few years ago. (In 2010, Mexico became the first Latin American sovereign to issue a century bond).

Rather, it was the 4.75 per cent coupon, which is the lowest obtained by a Latin American sovereign issuing bonds at that maturity and in US dollars. A press release by Mexico’s finance ministry stated that the bond was issued to yield 4.84 per cent.

As Bloomberg reported Monday, that level is 170 basis points above similar-maturity US Treasuries. It also noted that the average yield on the country’s dollar-denominated government debt fell to a record low 4.29 per cent on March 2 from 5.18 per cent a year earlier.

Clearly, that is a reflection of market conditions. But it is also true that it would not have been possible had Mexico not worked hard over the last 15 years or so to place its public finances on a solid footing and, at the same time, build its reputation in the markets – both domestic and international.

Take the external debt, which has come down from 16.5 per cent of gross domestic product to about 5 per cent today, significantly reducing foreign-exchange risk and volatility along the way.

Then consider how Mexico has developed its internal markets. In 2001, it placed its first-ever 10-year, peso-denominated bond. Two years later, it placed a peso bond with double that maturity. And in 2006, it issued a 30-year, peso-denominated bond in 2006. In each case, it established important benchmarks while maintaining balanced budgets. One tick and a gold star for Mexico.

Related reading:
Mexico: finding opportunities in the financial storm, beyondbrics
What market meltdown? Mexico pulls off $1bn century bond, beyondbrics
More lucrative than Bric status: Mexico joins elite bond index, beyondbrics
Growth outlook: not too shabby, beyondbrics