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Sovereign bond unlikely to drive up Mexican corporate issuance

The near US$3bn bond issued by the Mexican sovereign demonstrates how in-demand the country’s fixed income assets are. However, unlike in other LatAm countries, there will not be a significant amount of corporate bond offerings as a direct result, as the markets have been open to such entities all year. Nevertheless, a substantial spread rally could see corporates make opportunistic issuances.

Aug 9, 2016 // 5:17PM

The Mexican sovereign has raised US$2.76bn through a dual-tranche senior unsecured bond sale as part of a liability management operation to redeem short-term debt, according to Reuters.

The bond is split between a re-tap of Mexico’s 4.125% 2026 notes and a separate issue of bonds with a 30-year tenor, set to mature in 2047.

The tap is worth US$760mn, and was priced at T+145bp to yield 3.042%. The 30-year tranche, comprising of the remaining US$2bn, was priced at T+205bp to offer a coupon of 4.35% and a yield of 4.366%.

There was a significant amount of demand for the bond. Reuters reported that the orderbook reached nearly US$9bn.

Despite the popularity of Mexico’s sovereign bond, it is unlikely that there will be a flood of issuance from the country’s corporate space, contrary to what was seen in Argentina earlier in the year.

The market has been rallying outside of this issuance for some time, and Mexican markets have been open all year, which has led to a large spread rally according to Luis Olguin, portfolio manager of EM debt at NN Investment Partners.

There has been a significant amount of Mexican corporate issuance already this year, which currently amounts to US$15bn.

Nevertheless, Mexican companies are still likely to be opportunistic in their issuances. “Corporates may begin to prefund 2017 capital needs given current market strength.”

The popularity of Mexican debt stems from the fact that the corporate debt universe as well as the wider economy in the country enjoys substantially more diversity than other LatAm nations.

Olguin noted that this provides investors with a large number of potential returns that are not available elsewhere.

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