Mexico Breaks Sovereign Silence

Mexico reopened its 2017 and 2034 sovereign bonds Monday afternoon, marking the first significant cross border offering since the market meltdown began in late July. Bankers on the deal say the book was 4x oversubscribed and that robust demand allowed for a tightening of pricing from where the taps were whispered. A $500m reopening of the UMS 2017 came at 99.55, a spread of 105bp over the comparable US Treasury, to yield 5.687%. That represented a 3/4 point discount from the bond’s trading level Monday, compared to the unofficial guidance of a discount of one point, says a banker on the deal. A simultaneous $500m tap of the 2034s came at 108.25, a spread of 122bp over the 30-year UST, to yield 6.122%. That was 1.25 below the secondary level, compared to the 1.25-1.50 point discount that was reportedly floated to investors, says a banker on the deal. Bankers both on and away from the transaction say the discounts were bigger than what Mexico would have paid in a better market, but appropriate given the fact this was the first deal out. However, some saw the premium paid as overly steep given the sovereign’s recent history. “Some people might be shocked,” says a veteran banker familiar with the credit. Proceeds were used to replenish Mexico’s coffers following a $4bn bond buyback in January. Merrill Lynch and UBS were joint bookrunners on the deal.