Mexico Plays Safe With Double-Barreled Tap

Mexico has knocked out a considerable portion of its financing needs with a $1.75bn retap of its 2019 and 2040 bonds done at a generous concession. In its first issue since a 5-year February transaction where it also scrapped a 20-year tranche, the sovereign played it safe, poking its head out Friday morning with the 2019 tap before later announcing 2040 supply on reverse inquiry. It priced $1bn in 5.95% of 2019s at 106.125 to yield 5.126%, in line with 5.159%, or 105.875, area guidance. The $750m in 6.05% of 2040s reopened at 100.10 to yield 6.042%, with no guidance given. A banker managing the deal says the 2040 was reopened for a few minutes based on reverse inquiry, with little oversubscription. The 2019 tranche saw about $4bn in demand, he adds. The 2019s traded up at 106.25-106.50 Friday afternoon, while the 2040s were heard up at 101. “Clearly the emphasis was on amount over price,” says Siobhan Morden, fixed-income strategist at RBS, spotting about a point of concession on each tranche and noting this was wider than its last 10-year deal in December. A banker on the deal spots the concession on the 2019 at 0.75 points and the 2040 at 1 point. “This certainly positions Mexico well in terms of pre-funding,” Morden adds. The issue comes at a time when a tax reform proposal to boost revenues is on the table and there is the looming possibility of a downgrade, an EM investor says, indicating there is some risk being passed on to buyers. Barclays and JPMorgan managed the sale. Mexico had indicated prior to the issue that it would raise to do about $1.75bn before the end of the year. Mexico is rated BBB+.