Mexico scores century and hat-trick

viernes 10 de abril de 2015 10:25 GYT

By Paul Kilby and Davide Scigliuzzo

NEW YORK, April 10 (IFR) - Mexico reached another milestone this week when it took advantage of prime borrowing conditions in Europe to become the first-ever sovereign to sell a euro-denominated Century bond.

The landmark EUR1.5bn trade was seen as an achievement for an emerging market country that is now in a unique position of being the only issuer in the world to have three 100-year bonds to its name.

A quantitative easing programme that has sent rates on many European government bonds into negative territory presented a perfect opportunity for the Latin American borrower, rated A2/BBB+/BBB+, as investors expressed a willingness to venture up the maturity curve in search of higher yields.

The announcement of the 100-year bond on Wednesday (through leads Goldman Sachs and HSBC) soon drew a crowd of European accounts, which found initial price thoughts of 4.50% hard to ignore, especially when 30-year German Bunds are trading at 0.63% and even troubled peripheral countries such as Triple B rated Spain are offering just 2% on long-term bonds.

"The ECB's quantitative easing and the relatively low supply from EM provided a good backdrop for a transaction like this and we thought the levels (at which) we could print a centennial in euros were attractive," said Alejandro Diaz de Leon, Mexico's deputy under-secretary for public credit.

Nor did the deal go unnoticed among US investors, who comprised 28% of the final book after demand peaked at around EUR6.3bn. For them, however, the appeal lay in the comparatively wide spread differential between the country's 30-year and 100-year bonds.

With Mexico's existing euro-denominated 2045s yielding around 2.75%, the borrower was in effect offering 145bp to take further duration risk. That compares with a steepness of around 75bp along the sovereign's US dollar curve, where the 5.75% 2110s and 5.55% 2045s were yielding 5.2% and 4.45%, respectively.

While bankers said the pricing had to take into account the extra duration risk for investors, US accounts still saw considerable value in the trade.   Continuación...