Carlos Slim’s Banco Inbursa SA and Nissan Motor Co. of Tokyo are leading the busiest month for Mexican peso debt sales since April as benchmark peso yields fall to an eight-month low and borrowing costs rise overseas.
Local corporate offerings totaled 14.9 billion pesos in July, the most in three months, according to data compiled by Bloomberg. Mexican companies borrowed $2.1 billion in the dollar bond market in June and July after borrowing $4.7 billion in the previous two months. Issuance by companies in Brazil’s local market fell to 2.4 billion reais ($1.5 billion) this month from 3.7 billion reais in June.
The slowest inflation in almost five years is driving down borrowing costs in Mexico while concern the U.S. may default is making it more expensive to sell debt abroad. As policy makers raise benchmark interest rates from Brazil to China, Mexico’s central bank has kept its target rate at a record low 4.5 percent, helping prompt Nissan and Inbursa to sell 8.5 billion pesos of debt this month.
“It’s just easier in the short-term right now to issue in pesos,” Araceli Espinosa, a debt analyst at Scotia Capital, said in a telephone interview from Mexico City. “Foreign investors don’t want to risk too much right now, so they go into the peso debt market, where there is less uncertainty.”
Yields on Mexican government peso bonds due in 2024, the benchmark for companies, sank 26 basis points, or 0.26 percentage point, in July to 6.94 percent, the lowest since November. The extra yield investors demand to own Mexican corporate dollar bonds instead of U.S. Treasuries grew 14 basis points to 326 over the same period.
Annual inflation in Latin America’s second-biggest economy slowed to 3.28 percent in June, compared with 6.71 percent in Brazil, from 3.69 percent a year earlier. Mexico’s rate touched a five-year low of 3.04 percent in March.
The slowdown in consumer price increases prompted traders on July 19 to push back bets for a boost in interest rates for a 10th time this year. Banco de Mexico, the only central bank in a major Latin American country to leave borrowing costs unchanged in the past year, will wait at least until April to raise the key rate from 4.5 percent, futures trading shows.
Banco Inbursa, the banking unit of Slim’s Grupo Financiero Inbursa SAB, sold around 5 billion pesos of three-year bonds to yield 20 basis points over the 28-day TIIE interbank lending rate on July 21.
Luis Frias Humphrey, Inbursa’s director of corporate banking, didn’t return a phone message.
NR Finance Mexico SA, Nissan’s local credit unit, issued 2.5 billion pesos of debt due in 2014 to yield 50 basis points above the 28-day interbank lending rate on July 27.
A Nissan press official in Mexico City referred calls to a spokesman in Japan, who didn’t immediately return an e-mail for comment after business hours.
Mexican corporate offerings totaled 113.4 billion pesos this year, up 11 percent from the same period in 2011, according to data compiled by Bloomberg. Mexican companies sold $12.1 billion abroad in 2011, down 40 percent from the year-earlier period.
“Dollar debt issuances have slowed down because of the uncertainty in the U.S., because of the debt limit talks,” Arnulfo Rodriguez, the head of fixed-income research at Citigroup Inc.’s Banamex unit, said in a telephone interview in Mexico City. “Mexico has good fundamentals.”
Democrats were working yesterday to break an impasse over raising the U.S. debt limit by devising a strict enforcement mechanism to guarantee future deficit savings, according to party officials. The U.S. House delayed a vote on Speaker John Boehner’s debt-ceiling increase.
Mexican companies will return to the dollar debt market after the U.S. Congress and President Barack Obama reach an agreement to raise the debt ceiling and avoid default, said Alejandro Hernandez, who helps manage about $1.5 billion of debt at Interacciones Casa de Bolsa SA in Mexico City.
Dollar issuance is “going to get back on track slowly,” Hernandez said in a telephone interview. “The debt ceiling is a political issue more than anything with upcoming elections next year. The world’s largest economy is not going to default.”
The extra yield investors demand to hold Mexican government dollar bonds instead of U.S. Treasuries narrowed two basis points to 126 at 7:44 a.m. New York time, according to JPMorgan Chase & Co.
The cost to protect Mexican debt against non-payment for five years fell one basis point to 111 basis points, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a government or company fails to adhere to its debt agreements.
The peso dropped 0.4 percent to 11.7572 per U.S. dollar.
Yields on futures contracts for the 28-day TIIE interbank rate due in April fell four basis points to 5 percent, indicating traders expect the central bank to raise benchmark borrowing costs that month.
Local debt issuance in Mexico will keep rising because central bankers will hold the benchmark rate at a record low through this year, Banamex’s Rodriguez said.
“There is no fundamental reason in Mexico for rates to rise,” Rodriguez said. “Mexico is not having any of the same fundamental problems that other countries are having.”
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