Mexican Government Invests US$7.5 Billion in Bonds

The Mexican Government has invested US$7.5 billion (MX$127.03 billion) in bonds to continue financing its debt going into a new election year. While the purchase of bonds is customary, experts remain concerned about the impact of rising inflation. 

On Tuesday night, the Ministry of Finance and Public Credit (SHCP) announced its largest debt placement in recent history in international markets, issuing US$7.5 billion in sovereign bonds. This move aligns with President Andrés Manuel López Obrador's strategy to strengthen debt levels and fund additional expenditures during this election year. As a result of this placement, Mexico attains the status of the largest sovereign issuer with a BBB rating on a global scale, according to the Government.

The acquisition of favorable financial conditions is expected to result in a reduced financial cost compared to previous months, according to the statement. The transaction enhances the liquidity and efficiency of the dollar bond yield curve (the relationship between yield and time of the bonds) and establishes a positive precedent for future Mexican public and private sector issuances throughout the year, according to Gabriel Yorio, Deputy, Ministry of SHCP.

"As is customary every year, Mexico inaugurates issuances in international markets. On this occasion, with a historic transaction of US$7.5 billion, we managed to reduce the financing cost with favorable rates and ensured 100% of the external debt maturities for this year," detailed Yorio, through his X account.

Como cada año, México inaugura las emisiones en los mercados internacionales. En esta ocasión, con una transacción histórica de 7,500 millones de dólares, logramos reducir el costo del financiamiento con tasas favorables y aseguramos 100% de los vencimientos de deuda externa de…

— Gabriel Yorio (@GabrielYorio) January 2, 2024

The sovereign bonds were distributed across three segments: a five-year bond with a 5.07% yield rate, 37 basis points more cost-effective than January 2023, and a US$1 billion coupon at 5%; a 12-year bond yielding 6.09%, 30 basis points cheaper than a year ago, with a US$4 billion coupon at 6%; and a 30-year bond with a 6.45% yield rate, 11 basis points higher than bonds issued in April of the previous year, featuring a US$2.5 billion coupon at 6.4%. 

However, in its Public Finance and Public Debt report last Friday, the SHCP informed that amidst prevailing restrictive financial conditions, the financial cost of the debt continued to rise for the January to November period, registering a 26.5% increase compared to the same period in 2022. According to the agency, it remained 1.9% below the programmed target.

The same document noted that the Historical Balance of Public Sector Requirements (SHRSP), representing the public debt in its broadest presentation, reached MX$14.57 trillion during this period, accounting for 46.5% of the GDP.