For World’s Lone 100-Year Bond Issuer, an Old Crisis Dies Hard

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Mexico has sold 100-year bonds abroad on five occasions since 2010. Denominated in three different currencies, the deals raised almost $6 billion in all.

The rest of the world’s governments have sold none.

What do Mexican officials see that no one else does? The answer, analysts say, is a combination of the government’s decades-long effort to extend debt maturities to avoid a repeat of its 1994 peso crisis, and a legacy of technocrats from the country conjuring up exotic financing strategies. Since the 100-year securities come with higher borrowing costs, and interest rates in developed countries are close to zero or even negative, other nations haven’t been willing to pay extra for money due three generations from now. Or for the bragging rights.

“There is a public relations component to this,” said Joe Kogan, the head of emerging-markets strategy at Bank of Nova Scotia. “But from Mexico’s point of view, the global interest rate environment is the lowest it’s ever been, and it won’t be this low for long.”

Countries and companies from Bulgaria to China have taken advantage of falling borrowing costs in Europe, issuing 20 billion euros ($21.7 billion) in the first three months of this year to cap the second-busiest quarter for emerging-market bond sales in a decade. Nobody besides Mexico has sold euro bonds longer than 17 years, data compiled by Bloomberg show.

Mexico sold 1 billion pounds ($1.49 billion) of 100-year debt in the U.K. currency in 2014. Since 2010, the country has sold $2.68 billion of dollar-denominated century bonds.

China Sale

“It grabs headlines,” said David Spegel, the head of sovereign and corporate strategy research at BNP Paribas.

Prior to Mexico’s push this decade, China was the last government to sell 100-year bonds in international markets in 1996.

Mexico’s euro-denominated century bonds were sold to yield 4.2 percent. That’s a premium of about 1.4 percentage points over the country’s euro notes due in 2045. With roughly $1.6 billion of the new bonds, it works out to an extra cost of about $22.4 million per year -- at a time when falling oil revenue has forced the government to slash spending by about $8.2 billion.

The initiative is part of an effort to safeguard the economy from a repeat of the so-called Tequila Crisis in the mid-1990s, when demand for Mexico’s short-term debt dried up and helped spark a 35 percent peso devaluation.

‘Attractive Levels’

“They see the value of long-dated issuance as permanent capital at attractive levels,” said Neil Slee, the head of emerging market syndicate at Goldman Sachs Group Inc. in London. Goldman Sachs was an underwriter on all three of Mexico’s 100-year bonds.

The peso dropped 0.6 percent to 15.1775 per dollar at 2:13 p.m. in New York.

Among developing countries, Mexico has a string of financial firsts. In 2014, the country became the first emerging-market borrower since the financial crisis of 2008 to sell 20-year bonds in Japanese yen. Mexico in 2009 was the first country to receive a flexible credit line from the International Monetary Fund, created for economies deemed to have strong fundamentals.

The sale of the century bonds “differentiates Mexico from other emerging countries,” Alejandro Diaz de Leon, the head of Public Credit at Mexico’s Finance Ministry, said by telephone. “A debt portfolio should avoid being very pro-cyclical, which means issuing short-term debt when a government needs fiscal funds and issuing long-term debt when you don’t. This extreme solution can be risky.”

Bianca Taylor, an analyst at Boston-based Loomis Sayles & Co., which oversees $230 billion, says Mexico’s credit rating is just high enough to provide comfort to investors, and just low enough for the country to still care about refinancing risk.

While even a 60-year bond would have probably given Mexico the same sense of financial security as a 100-year bond, she said, the rounder number signals an attitude of “watch me do this, because I can.”

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