Flash Fixed Income Report /

Mexico to issue two-tranche bonds – a tap and a new long bond

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    23 July 2019
    Published by

    Mexico (the United Mexican States or Mexican Government Bonds with ticker MEX) is expected to issue two-tranche bonds today:

    1. A US$250mn (minimum) tap of its 4.50% bonds due 2029 (A3/BBB+/BBB+) with an initial price guidance of T+185 bps, and
    2. A new US benchmark (which we believe would be between US$500mn-1bn, 30-year new bond (A3/BBB+/BBB+), with an initial price guidance of T+220 bps.

    The current outstanding US$2bn, 4.50% senior unsecured bonds issued by the United Mexican States (MEX) due 2029 are currently trading at cUS$107.157 (ALLQ) to yield c3.62% (g-spread 157 bps; z-spread 165bps), which suggests that the tap would perhaps price closer to these levels and tighter than the initial price guidance.

    Mexico's other outstanding senior unsecured US$2.525bn, 4.60% bonds due 2048, are currently trading at cUS$102.848 (ALLQ) to yield c4.42% (g-spread 187bps; z-spread 223bps) and a duration of 16.017 years. We believe that the new US benchmark could price inside of this.

    In both cases, given the deteriorating economic variables in Mexico, we see these issues as tight, even at the initial price guidance levels. Obviously if the final prints come below these initial levels, we think that the bonds should be considered expensive.

    However, although we remain bearish on Mexico and its economic outlook, we acknowledge that investors’ appetite for Mexican sovereign and quasi-sovereign paper has only decreased marginally and that these two issues should be well-received by the markets, purely for technical reasons. Having said that, we do not see further upside once these two tranches are issued.