Mexico's $372 Billion Corporate Bond Market Is Heating Up

(Bloomberg) -- Mexico's Trump-era turnaround has reached the local corporate debt market.

Sales of the notes have climbed every month since bottoming out in January, when Donald Trump's inauguration capped weeks of investor anxiety amid concern his proposed policies would devastate Mexico's economy. June's final days set a weekly record for bond sales, while the entire month registered an 18 percent increase from the same period last year.

The new-issuance surge in what many observers had predicted would be a dismal year for Mexico shows increased confidence in its ability to withstand a renegotiation of the North American Free Trade Agreement. The peso is the top performer among major currencies this year, Mexican stocks are posting some of the biggest gains in Latin America and government borrowing costs are down. All that is boosting sentiment toward local corporate debt.

“Summers are typically calm, but this year's been the complete opposite,” said Alejandro Sanchez, the head of debt capital markets at Citigroup Inc.'s Mexico unit. “We've seen market momentum that keeps growing.”

From Latin America's biggest soft-drink bottler to the state-owned electricity utility, companies issued 209 billion pesos ($11.7 billion) of local bonds this year, including 99 billion pesos worth in June alone, according the latest figures from the country's biggest exchange. Some 6.6 trillion pesos in bonds are outstanding, data compiled by Bloomberg show.

“Everyone's lined up to issue,” said Octavio Calvo, the head of debt capital markets at Grupo Financiero Santander Mexico SAB.

The bank was an underwriter of the two largest bond deals this summer. Coca-Cola Femsa SAB sold 10 billion pesos, including 10-year notes with a fixed rate of 7.87 percent. Comision Federal de Electricidad sold 8 billion pesos, including a 10-year bond paying 8.18 percent.

Faster inflation and a series of interest-rate increases by the central bank in the last year drove near-term borrowing costs up, but investors are convinced the long-term outlook is benign, which has helped push longer-term borrowing costs down.

The pipeline for the rest of 2017 includes 19 more bond issuers looking to go to the market, according to filings to the Bolsa. The currency gained 0.1 percent Tuesday to 17.7815 per dollar as of 10:45 a.m. in New York.

“This is the right time to issue at fixed rate long-term securities,” analysts led by Ociel Hernandez from BBVA Bancomer wrote in a note in July. “The search-for-yield environment would suggest demand for these securities.”

To contact the reporter on this story: Isabella Cota in Mexico City at icota@bloomberg.net.

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh, Randall Jensen