(Bloomberg) — Mexico kicked off sales of 2024 emerging market sovereign bonds with the largest deal on record for the Latin American country.
Most read on Bloomberg
The country raised $7.5 billion through the sale of global dollar benchmark notes with maturities of five, 12 and 30 years, according to people with knowledge of the matter, who asked not to be identified because they are not not allowed to talk about it.
While sentiment in global markets was negative, orders for the deal reached $20 billion, the sources said. The bonds were priced Tuesday at 115, 215 and 235 basis points over Treasuries, respectively, the sources said, as prices tightened from initial forecasts.
President Andres Manuel Lopez Obrador is increasing spending in his final year in office, running up the country’s largest budget deficit since 1988, as he increases cash aid programs and seeks to complete historic projects before the June elections. It’s a departure from its usual fiscal austerity, which had weighed on the peso in recent years as Mexico’s stability stood out among emerging markets.
AMLO budgeted support for state oil company Petroleos Mexicanos for the first time this year, after providing repeated cash injections and tax breaks. At the same time, lawmakers more than tripled the $18 billion cap on foreign debt in the 2024 budget from the 2023 limit, as part of spending on projects such as a rail link linking the ocean and a new gasoline refinery.
As a result, Mexico is expected to see the largest increase in net debt issuance among its regional peers this year, Nathalie Marshik, managing director of fixed income at BNP Paribas in New York, wrote in a note last month.
Read more: Mexico’s populist leader abandons austerity amid investor discontent
Earlier Tuesday, officials also touted a 25 percent increase this year in the cash aid program for the elderly, to 6,000 pesos every two months, under a program introduced by AMLO that doubled payments since 2021.
The announcement helped make the country’s bonds one of the worst performers of the day among emerging markets, with bonds maturing in 2053 sliding 2 cents on the dollar.
BBVA Mexico strategist Miguel Iturribarria said that despite rising emissions, Mexico has kept total debt as a proportion of its gross domestic product stable compared to other emerging markets.
“In the short term, an increase in local and foreign currency debt issuance is not a concern,” he said. “However, in the coming years, if this deficit-increasing trend continues, the market may begin to price a higher risk premium into bonds.”
Barclays Plc, Bank of America Corp., JPMorgan Chase & Co., Morgan Stanley and Santander are leading the deal.
In addition to Mexico, which traditionally taps the markets at the start of the year, Slovenia announced on Tuesday that it had engaged banks for the sale of a 10-year bond, which should be launched in the near future.
–With help from Caleb Mutua, Maya Averbuch and Christopher DeReza.
(Updates with prices in paragraph three, analyst comment in paragraph nine.)
Most read from Bloomberg Businessweek
©2024 Bloomberg LP