The Mexican government has sold $1bn in bonds with a maturity of 100 years in what is the first century bond issued by a Latin American sovereign.
The decision to sell the bonds on Tuesday came as Latin America’s second-largest economy took advantage of investor demand for higher-yielding investments against a backdrop of record-low interest rates in Europe and the US.
Emerging-market debt has been popular with investors who have fled to the safety of bonds, but who are looking for greater returns than those offered on debt issued by developed markets.
About $40bn of investors’ money has flowed into emerging markets debt funds in the first nine months of the year, four times the previous record for a full year, according to EPFR, a data provider that monitors fund flows.
That level of demand helped push Mexico’s benchmark 10-year bond to a record-low yield this year.
Tuesday’s issue was priced to yield 6.1 per cent. Deutsche Bank and Goldman Sachs arranged the sale. Goldman officials said Mexico’s deal was the largest ever for century bonds and only the second one bigger than $500m.
Richard McNeil, head of Latin American capital markets at Goldman, said more century bonds from Latin America were “quite possible. The appetite among investors for investments in Latin America is very strong.”
Mexico is the third emerging market sovereign to tap the century bond market, joining China and the Philippines, according to Dealogic. It is the third issuer this year, after railroad operator Norfolk Southern and Rabobank of the Netherlands reopened the market after several years.
Analysts said that the bonds were an opportunity for Mexico to reassert and consolidate its positive reputation with investors.
Enrique Alvarez, head of research for Latin American financial markets at IDEAglobal in New York, said: “They are establishing a far-reaching point on a curve that simply says that investors are very willing to take in the Mexican name.”
Behind that ability is a startling transformation in the country’s public-debt profile compared with the mid-1990s. In 1994, at the time of the so-called Tequila crisis, the country’s federal government external debt was equivalent to 16.5 per cent of gross domestic product. On Wednesday, it is 4.8 per cent of GDP, just less than 20 per cent of the total debt.
But not everyone was excited. “I’m not seeing investor interest yet in 50-100 year bonds. This might create a market, but I’m sceptical,” Pierre-Yves Bareau, global head of emerging market debt at JPMorgan Asset Management, told the Financial Times. “Given the illiquidity, there are better uses for investors’ cash.”
The majority of the bonds were sold to US institutional investors, with the greatest demand from insurance companies.
Additional reporting by Stacy-Marie Ishmael in New York
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