Mexico Update: Century Bond and More

Mexico is taking advantage of the investment climate and the near insatiable demand for emerging market credits.  The peso may also benefit from actions by other countries, from Brazil to South Korea taking actions to deter hot money inflows.

Yesterday. Mexico brought a 100-year bond to market, an unprecedented duration for Latam and a rare issue in general.  Initially it was going to be a $500 mln issue but the demand was sufficiently strong that the government doubled the size and it was still over-subscribed.  Reports indicate that demand came from institutional investors in the US, Europe and Asia.  The yield on the 100-year bond was 6.1%, which is about a dozen basis points lower than the yield on a 30-year bond sold in April.

Mexico is preparing at JPY150 bln 10-year Samurai offering that is expected to be priced 50-65 bp above the yen swap rate.  The yen raised is expected to converted back into pesos.

Mexican government bonds have outperformed Brazilian bonds and Treasuries this year, according to industry benchmarks (16% for Mexico vs 14% in Brazil and 9% for the US). Key support for the dollar is seen near MXN12.40.  While MXN12.50 may offer initial resistance, stronger resistance is seen near MXN12.55.

Last week we recommended long CAD vs MXN positions and this has worked out fine and is now consolidating after Canada outperformed the peso by about 2.2% since Sept 29th.