August 8, 2016 / 12:52 PM / 2 years ago

UPDATE 2-Mexico returns to dollar bond market with blowout trade

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By Paul Kilby

NEW YORK, Aug 8 (IFR) - Mexico returned to the dollar market for the first time in eight months on Monday with a blowout US$2.76bn two-part bond that generated over US$10bn in demand.

Positive sentiment following Friday’s payrolls number and a recovery in crude prices presented an opportunity for the oil exporter, as it sought to redeem about US$2.76bn in January 2017 bonds.

The deal - comprising a tap of the existing 4.125% 2026s and a new 2047 bond - proved a hit among accounts still on the hunt for yield despite heightened expectations that the Federal Reserve will hike rates again this year.

“There was a nice reaction to the payroll number,” said a DCM banker. “It bumped up expectations about when the Fed might move but it doesn’t change the path of rates.”

Indeed a US$6.9bn book on the new US$2bn 30-year only underscored investors willingness to take on more duration, particularly through higher quality credit like Mexico (A3/BBB+/BBB+).

Such demand allowed leads to launch the US$2bn 30-year at a spread of 205bp, some 20bp inside initial price thoughts of 225bp area.

“Mexico remains a high quality story so you wouldn’t expect them to offer a massive amount of concession,” Sean Newman, a senior portfolio manager at Invesco, told IFR. “(But) we think it only makes sense at 210bp.”

Leads BBVA, Bank of America Merrill Lynch and Credit Suisse squeezed pricing 20bp before launching a US$760m tap of the 2026 at T+145bp after amassing a US$3.5bn order book.

At that level, Mexico offered a concession of flat to just 5bp over its curve, where bankers were spotting the bond pre-announcement at a Treasury spread of 140bp-145bp.

This comes on the back of substantial rally in Mexican sovereign bonds since January, when the country last tapped the dollar market with its first issue of the 2026.

Spreads on the 2026 hit a peak of around 259bp on February 11 at the height of the oil rout, only to narrow back to as tight as 138bp on Monday, near the all time low of 137.7bp seen on July 10, according to Thomson Reuters data. (Reporting by Paul Kilby; Editing by Shankar Ramakrishnan)

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