Mexico Joins Chile Selling Bonds as Oil Slump Cuts Revenueby
Nation sold 10-year dollar bonds at spread of 210 basis points
Chile on Tuesday set terms on bonds in euros and dollars
Mexico sold 10-year dollar bonds, its biggest sale in two years, making it the second Latin American country this year to issue debt in international markets.
The $2.25 billion of notes yield 2.1 percentage points more than similar maturity U.S. Treasuries, according to a person familiar with the matter, who asked not to be identified because the information is private. Debt from the region’s second-largest economy is rated A3, the seventh-highest investment grade, by Moody’s Investors Service and one level lower at BBB+ by Fitch Ratings and Standard & Poor’s.
The government of Enrique Pena Nieto estimates it will need to take on additional debt equal to 2.7 percent of gross domestic product this year as it makes bond payments worth an equivalent of 5.9 percent. The government cut spending last year as the price of oil, which accounts for a third of the national budget, fell 35 percent.
“You’re getting paid well to assume the risk of default," Joe Kogan, the New York-based head of emerging-markets strategy at Bank of Nova Scotia, said in an e-mail. “You have to go pretty far back in time to see Mexico spreads that are that high."
The extra yield investors demand to hold Mexican dollar debt instead of U.S. Treasuries is at the highest since the end of 2009, according to data compiled by Bloomberg.
Mexican sovereign bonds lost 2.3 percent last year, compared with an emerging-market average of 0.2 percent. Mexico last sold dollar bonds in January 2015 and euro bonds in April. Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley managed the sale.
Chile on Tuesday set the terms on 1.2 billion euros ($1.3 billion) of 10-year bonds and an additional $1.3 billion of 10-year dollar bonds, the first Latin American sovereign bond sale of the year. On the dollar bonds, Chile set a yield of 130 basis points, or 1.3 percentage point, more than U.S Treasuries due in 2025. It plans to use $631 million of the proceeds for buying back outstanding debt.
Brazilian bonds lost 15.9 percent in 2015, and Chilean sovereign debt returned 2.7 percent, according to Bloomberg indexes.