Mexico Sells $12 Billion Peso Bonds To Slash Foreign Debt

Mexico sold $12.4 billion worth of local-currency bonds yesterday, Thursday, and will use the money raised to prepay $9 billion of its $13.4 debt to the World Bank and the Inter-American Development Bank (IADB). The success of the sale underscores investor confidence in Mexico’s stability and in the likely accession in December of business-friendly Felipe Calderón as Mexico’s next president. The floating-rate federal development bonds (Bondes D) were issued by the Treasury and sold to investors via the Central Bank. The government accepted central bank bonds (Brems) as payment for the new paper. The government will use the $12.4 billion raised to buy some of the huge foreign currency reserves held by the Central Bank to pay down part of its foreign debt. Mexico has built up foreign currency reserves of around $78 billion mainly as a result of the high global oil prices. Mexico’s foreign debt-to-GDP ratio currently stands at 7%; following the early debt repayments this will fall to 5.4% and foreign debt as a percentage of total debt will fall from 35.2% to 27.3%.