Mexico Pays For Duration

Locking-in historically low interest rates available to quality LatAm issuers, Mexico has sold the first 100-year bond from a sovereign in the region, knocking the 2040 by pricing at a premium. The $1bn bond priced at 94.276 with a 5.750% coupon to yield 6.100%, or 30-year UST plus 235bp, in line with 6.100% area guidance. It was heard up 1pt in the gray at the end of the day Tuesday, with traders noting a 1pt drop in UMS 2040. Investors spot the premium to Mexico’s outstanding 30-year at 95bp-100bp, with bankers on the deal indicating 90bp-95bp. “We are at historic lows, and could potentially not see such low yields across the globe for a long time. You have to look at it from that perspective, even through they paid a bit of a premium,” Paul Biszko, EM strategist at RBC, tells LatinFinance. He notes the impact on the long end of the curve should be temporary. “This is what happens at the top of the market – they are securing this cheap financing for a long period of time,” says a West Coast EM investor who passed due to an overweight on Mexico. Bankers on the deal say an August $250m retap of BBB US railroad Norfolk Southern’s 100-year came 90bp wide to its 30-year, serving as a price reference. UMS has been heard considering the structure, though the market and issuer were surprised by the final $1bn size, upsized from $500m on about $2.6bn demand. “This was a non-obvious trade, but we’ve noticed the appetite for long-duration assets has increased in this low interest rate environment,” Gerardo Rodriguez, Mexico’s deputy undersecretary for public credit, tells LatinFinance. He says Mexico got the idea following a few corporate century issuances this year, and decided to take advantage of an all-time low yield environment. “Ahead of the transaction the question was weather we could break the negative dynamics around 100-year transactions,” he says, with deals characterized by low investor participation, small size, and low liquidity. Century issuance from Norfol