Latin America’s Biggest Borrower Boosts Market Share to 65%: Mexico Credit

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  • Posted on April 7, 2011

    Mexico is accounting for a record share of Latin American government dollar bond sales this year as it takes advantage of historically low U.S. interest rates.

    The government sold $1 billion of bonds due in 2040 yesterday to yield 5.95 percent in its second dollar issue in two months, pushing its share of regional offerings to 65 percent, according to data compiled by Bloomberg. The yield is down 27 basis points, or 0.27 percentage point, from the last time it offered the notes a year ago. El Salvador and Jamaica are the only other governments in Latin America and the Caribbean to tap the dollar bond market this year.

    Mexico is stepping up debt sales while others shun the international market because Finance Minister Ernesto Cordero is less concerned than regional counterparts about bringing dollars into the country and fueling gains in the currency, according to Gabriel Casillas, chief Mexico economist at JPMorgan Chase & Co. Cordero said on March 28 that the currency controls implemented by other developing nations are ineffective and create “distortions” in the economy.

    “Mexico stands out as one of the countries that has been able to remain outside of this debate and has managed financial variables within the expectations of freely moving markets,” said Jaime Valdivia, head of emerging-market research in New York at Bluecrest Capital Management, which holds $1.2 billion in developing-market investments. “The likelihood of us increasing our exposure in Mexico in the near term is high.”

    Mexico sold $4 billion in dollar debt overseas last year, the most by a Latin American country and accounting for 34 percent of regional dollar bond sales, according to data compiled by Bloomberg.

    Currency Measures

    Developing countries including Brazil have put in place measures to stem foreign investment that is fueling currency gains and crimping exporters’ profits. Investors seeking higher- yielding alternatives to near-zero interest rates in the U.S. and Japan are pouring money into developing countries such as Brazil, where benchmark borrowing costs are 11.75 percent.

    Brazilian Finance Minister Guido Mantega tripled a tax on foreigners’ fixed-income investments in October to 6 percent to curb the real’s two-year, 38 percent gain. Brazil will extend a 6 percent tax on foreign loans maturing in up to two years from debt due in less than 360 days, Mantega told reporters yesterday in Brasilia.

    “Those countries that implemented capital controls have no evidence that it had any impact in stopping the currency from appreciating and we believe that this creates very strong distortions in the economy,” Cordero said in an interview in Calgary. “Interest rates and tighter fiscal policy is the way to do it.”

    ‘Sweet Spot’

    Mexico is the only major Latin American country that hasn’t boosted interest rates in the past year as consumer prices increase at the third-slowest pace in the region after Chile and Peru. Mexican inflation slowed to 3.1 percent in the 12 months through mid-March, the lowest annual rate since May 2006 and half the 6.1 percent pace in Brazil, the region’s biggest economy.

    “The truth is that Mexico is in a sweet spot right now,” JPMorgan’s Casillas said in a phone interview from Mexico City. “The government isn’t as worried as Brazil or Chile, where the output gap has closed, inflation is rising, domestic activity is strong and the central banks have to raise rates. This sale is a message about the openness of the Mexican financial system and how there is no thought to create capital controls.”

    Mexico sold bonds yesterday to take advantage of falling yields relative to U.S. Treasuries, Deputy Finance Minister Gerardo Rodriguez said in a telephone interview from Mexico City. The government plans to sell as much as $3 billion in dollar debt this year, he said.

    ‘Coming Down’

    The extra yield investors demand to own Mexican dollar bonds instead of Treasuries shrank 21 basis points this year to 128, according to JPMorgan.

    “Our spreads are coming down and we wanted to take advantage of that,” Rodriguez said. “We have reached our primary goal for dollar debt this year with this sale.”

    Brazil’s Finance Ministry press office didn’t respond to phone calls seeking comment on the country’s plans for debt sales this year. Colombia’s public credit director German Arce didn’t return a telephone call. Peru’s Deputy Finance Minister Luis Miguel Castilla didn’t respond to telephone calls.

    Peso Rally

    The cost to protect Mexican debt against non-payment for five years was little changed yesterday at 100, according to CMA. Credit-default swaps pay the buyer face value in exchange for the underlying securities or cash equivalent if the issuer fails to comply with debt agreements.

    The peso rose 0.1 percent to 11.80640 per dollar. It is up 4.5 percent this year, the biggest gain among the six most- traded Latin American currencies.

    “The central bank of Mexico has depth of staff and superb leadership, and is well established in managing its currency,” Michael Roche, a New York-based emerging-market strategist at MF Global Holdings Inc., said in a telephone interview. “They’re walking a reasonably growth-engendering but prudent policy.”

    To contact the reporters on this story: Jonathan J. Levin in Mexico City at; Boris Korby in New York at

    To contact the editor responsible for this story: David Papadopoulos at


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