The recent issuance of Mexican debt bonds on international markets was, according to the government, “the largest issuance in recent history,” and Wall Street responded with enthusiasm, calling for a tripling of the issuance. Despite criticism from the Andres Manuel López Obrador government that it protects the country’s monopoly in the energy sector and seeks to Key partners versus…
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The recent issuance of Mexican debt bonds on international markets was, according to the government, “the largest issuance in recent history,” and Wall Street responded with enthusiasm, calling for a tripling of the issuance. This comes despite criticism that the government of Andrés Manuel López Obrador is protecting the country’s monopoly in energy and seeking to confront its main agricultural trading partner.narration nearshoringa strong exchange rate and surprising economic expansion have led the country to pay relatively low interest rates.
Mexico issued $7.5 billion in debt on Tuesday, becoming the country with the most outstanding debt on the international market among BBB-rated countries including Italy, Peru, Cyprus, Hungary and Indonesia. The Treasury Department enters the market on the first working day of each year, a practice that has occurred in Mexico for a decade, in order to send a message of fiscal and economic strength and get ahead of the competition.
To gauge the size of this month’s overwhelming sovereign note placements, it is enough to compare the numbers. The $7.5 billion in the first week of this month exceeded the total debt issued in the 12 months in recent years. This number exceeds 5 million in 2016 and is almost double the 4.8 in 2019. The sweet moment the Mexican economy is going through can be summed up by a phrase that echoes across Wall Street’s trading floors: “Mexico is the market’s darling.”
Abroad, lawmakers and analysts have expressed dissatisfaction with legislation pushed by López Obrador to safeguard monopolies for state companies in the energy sector, which is considered protectionist and violates the U.S.-Mexico trade agreement with the United States and Canada. Canada Agreement. In addition, the president’s insistence on banning the import of genetically modified corn from the United States has triggered friction among trading partners. But Luis Gonzaly, a mathematician and financial strategist at Franklin Templeton in Mexico City, thinks the narrative of Mexico as a country that has everything to attract foreign investment in the coming years prevails.
“Our country risk will be higher as we begin 2023,” Gonzalli said, referring to 130 basis points in credit default swaps (CDS). These are now trading at close to 90 basis points. “This has to do with several factors. Among them, our economy is growing faster than last year, the exchange rate has appreciated significantly, which makes it easier to pay debts in dollars, and the narrative that exists in Mexico right now nearshoring“The narrative that the Mexican economy is resilient is improving.”
Falling risk premiums in the country make this an opportune time to issue new debt, and the interest rates negotiated by the Treasury reflect this. According to the agency, $1,000 has a five-year term and an interest rate of 5.07%, which is 37 basis points cheaper than in January 2023. The 12-year bond, worth $4 billion, has an interest rate of 6.09%, 30 basis points cheaper than a year ago; the 30-year bond, worth $2.5 billion, has an interest rate of 6.45%, only 11 basis points more expensive than the bonds issued in April. last year. “Debt has become more expensive around the world, but for Mexico, these rates are good,” Gonzalli explained. This is due to the central bank raising interest rates to curb high inflation.
On Wednesday, Deputy Minister of Finance and Public Credit Gabriel Yorio posted on social networks that the debt level was below 48% of gross domestic product (GDP). However, this represents a significant increase from what has been announced since the Treasury Department presented its 2024 budget to Congress last September. The budget deficit is close to 1.7 trillion pesos, equivalent to 4.9% of gross domestic product (GDP). This is a level never seen before. The resources will be used primarily to complete López Obrador’s signature infrastructure projects since 1989 and to increase social spending to an “unprecedented” level of 12.8% of GDP.
“We continue to issue bonds, there is interest, the credit rating remains stable and the economic fundamentals remain good, but all eyes will be on next year’s budget,” Gonzalli said. In June, Mexico will hold a vote to elect a new president. . “We’ve been in a high deficit for two years and fortunately we’ve had a favorable exchange rate and economic growth, but we can’t let this continue. I think the discussion going forward will be with the new government: How will it deal with the debt? “
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