Pimco, Emso Detect Default Risk Mispricing in Pemex’s Bonds

In financial markets awash with so much cash that junk bonds can yield less than 2%, the state-owned oil giant Petroleos Mexicanos is a jarring outlier.

At 5.4%, the yield on the company’s benchmark bonds is not only well above that of similarly rated debt, it’s also almost four percentage points higher than the rate investors demand to buy Mexican government bonds. That gap -- known as the sovereign to quasi-sovereign spread -- is the biggest of its kind in the world, and the message it sends is crystal-clear: Pemex’s financial woes are so severe that investors have serious doubts about whether the government will bail it out when needed.