Mexico Dazzles With Surgical Strike

Mexico has cracked open the international bond markets for EM issuers with a tightly priced $2bn 10-year benchmark that takes out much of 2009 funding needs. The surprise surgical strike on markets assumed to be firmly shut for LatAm breathes life into fixed income and could spur fresh high grade activity in early 2009. The Global 5.950% of 2019 priced at 99.784 to yield 5.980%, or 390bp over UST and was heard trading at 100.25 (385bp) late Thursday. Guidance was 400bp area and the deal was executed at just 40bp above the 2017 – according to the leads – versus expectations of at least a 50bp concession taking into account recent US high grade pricing. Bankers away from the Baa1/BBB+ deal had expected the first LatAm issuers back to pay 60bp-100bp, but UMS was helped by recent firming in US fixed income and a relatively solid reputation. “The market was really at its peak and we also saw that in the sovereign space,” says Elizabeth Dennis, head of LatAm syndicate at Morgan Stanley, joint lead on the deal with Goldman Sachs. “It’s a great signal, everyone has been waiting for the EM market to reopen.” Mexico also benefits from scarcity value. It was last in the market in January with a new $1.5bn 2040 bond priced at 99.930 and 6.050% coupon to yield 6.055%. JPMorgan predicted in October that UMS would not issue at all in 2009, when it will make coupon and amortization payments of just over $8bn. Buyers of Thursday’s deal were 60% from the US, 35% LatAm (mainly Mexico) and 5% Europe. The bulk was dedicated EM, with some cross-over high grade, according to Dennis, who adds that the transaction covers most of Mexico’s 2009 funding requirements. There is a make whole call at UST+50bp and maturity is March 19 2019. Bankers at rival shops tip their hats to the first major bond issuance in months. “They should be extremely happy,” says a senior DCM official. “It shows the market is hungry for sovereigns,” adds the banker, saying that the transaction bodes well for LatAm volu