Slim Not Spared as Bond Market Sell-Off Spreads: Mexico Credit

Mexican Billionaire Carlos Slim
Mexican billionaire Carlos Slim. Photographer: Chris Goodney/Bloomberg

The rally in bonds from Mexico’s highest-rated companies is turning into a rout as Europe’s debt crisis causes investors to shun all emerging-market assets.

Yields on dollar bonds due in 2020 sold by Coca-Cola Femsa SAB, the bottler rated A- by Standard & Poor’s, jumped 44 basis points, or 0.44 percentage point, in the past week to 3.96 percent. Yields on similar-maturity debt from America Movil SAB, the wireless carrier controlled by billionaire Carlos Slim, surged 56 basis points. Borrowing costs for companies globally that share the companies’ rating rose 15 basis points in the past week, according to Bank of America Corp.

Investors who drove yields on Coca-Cola Femsa and America Movil to record lows in August as a bet they could withstand the global economic slowdown are now selling on concern a Greek default may spark a financial crisis. U.S. Treasury Secretary Timothy F. Geithner called on governments to unite with the European Central Bank, warning that failure to act threatened “cascading default, bank runs and catastrophic risk.”

“Nothing is completely secure,” Miguel Angel Aguayo, a fixed-income analyst at Grupo Financiero Banorte-Ixe, said in a telephone interview from Mexico City. “This idea of too-big-to-fail is a joke. As long as we see this uncertain outlook, yields on these bonds are going to continue to rise, or at least remain at these levels.”

Yields on the Mexican government’s dollar bonds maturing in 2020 also soared in the five days through yesterday, climbing 47 basis points to 4.14 percent, according to data compiled by Bloomberg. The government is rated BBB, the second-lowest investment grade and two steps below Coca-Cola Femsa and America Movil.

Treasuries Rally

Yields on benchmark 10-year U.S. Treasuries sank five basis points in the past week as investors turned to the securities for refuge.

Investors are selling their investment-grade Mexican government and corporate debt because the securities are in part easier to trade than higher-yielding, junk-rated bonds, said Gaston Guerrero, who helps manage about $300 million of emerging-market debt at San Diego-based Precise Securities.

“If you’re looking for liquidity, you hit the bid wherever you can find it,” Guerrero said in a telephone interview from San Diego. “Pretty much all asset classes have been hit. For second-tier Mexican corporates, there’s really no bid there.”

Average yields on Mexico corporate debt overall have climbed 104 basis points since the end of July, according to JPMorgan Chase & Co data.

Slowing Growth

Yields on Mexico City-based Coca-Cola Femsa’s benchmark bonds fell to 3.25 percent on Aug. 18, the lowest since they were issued in August 2010, before beginning to move higher the following month, according to data compiled by Bloomberg.

Jose Castro, a Mexico City-based investor relations officer at Coca-Cola Femsa, didn’t immediately return a telephone message seeking comment.

America Movil’s benchmark bonds also rallied last month, with yields sinking to an all-time low of 3.48 percent on Aug. 18.

An America Movil official who asked not to be named because of company policy declined to comment. Arturo Elias, a spokesman for Slim, didn’t immediately respond to a phone call and e-mail.

Mexico’s economy will probably grow 4 percent this year after expanding 5.4 percent in 2010, the fastest pace in a decade, central bank Governor Agustin Carstens said in a Sept. 8 interview with Mexico City-based Radio Formula. Growth in the U.S., the destination for 80 percent of Mexico’s exports, will slow to 1.6 percent this year, according to the median estimate in a Bloomberg survey of 66 analysts.

Buying Opportunity

The extra yield investors demand to own Mexican government dollar bonds instead of U.S. Treasuries fell 14 basis points to 262 at 8:20 a.m. New York time, according to JPMorgan’s EMBI Global index.

The peso rose 1.2 percent to 13.3741 per U.S. dollar today. It’s down 7.8 percent this month.

The cost to protect Mexican debt against non-payment for five years fell 10 basis points to 196 yesterday, 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.

Yields on futures contracts for the 28-day TIIE interbank rate due in January 2013 fell 21 basis points yesterday to 5 percent.

‘Cheap Options’

The slump in bonds from investment-grade companies including Coca-Cola Femsa and America Movil may create a buying opportunity, said Guillermo Rodriguez, who helps manage about $5.5 billion at Corp. Actinver SAB. The securities may rally if European officials take measures to resolve Greece’s crisis, he said.

“There are very cheap options in the market,” Rodriguez said in a telephone interview from Mexico City. “Once there’s calm, once there’s more certainty, we’ll start looking at the good corporate bonds again.”

German Chancellor Angela Merkel said on Sept. 25 that euro-region leaders must erect a “barrier” around Greece and expand the powers of the region’s rescue fund to safeguard other European countries.

Investors are growing concerned European policy makers won’t act in time to avoid a crisis similar to the one triggered in 2008 by the collapse of Lehman Brothers Holdings Inc., said Aziz Sunderji, a credit strategist at Barclays Plc.

The average yield on Mexican corporate debt surged 477 basis points in October 2008, the month after the collapse of Lehman, to 13.64 percent, according to JPMorgan.

“The longer we don’t get any action from European policy makers, the more worried people get and the more concerned they are about a dramatic sell-off -- like a 2008 type of event,” Sunderji said in a telephone interview from New York.

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