Mexico prices record bond deal

Mexico kicked off its 2025 fundraising program on Monday with the sale of $8.5 billion worth of global bonds, taking advantage of strong investor demand to price its biggest-ever cross-border issue.

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The government printed $2 billion in five-year bonds, $4 billion in 12-year bonds and $2.5 billion in 30-year notes, the finance ministry said in a press release. Investors placed as much as $33 billion in orders, it said.

“This operation covered a large part of the financing needs in foreign currency for 2025 and provided greater flexibility in the selection of future market windows for the rest of the year,” the ministry said.

The sale marks the sovereign’s first US bond issue in a year and is the first international issue since President Claudia Sheinbaum took office in October. The outsized fundraising comes two weeks before Donald Trump assumes the US presidency and implements an economic program that could strain relations with key trading partners such as Mexico.

“I would view today’s deal as a positive given their ability to upsize the deal, reduce pricing from initial price talk while maintaining strong books,” said Michael Arno, an associate portfolio manager and senior research analyst at Brandywine Global Investment Management in Philadelphia. “Market participants were willing to look past 2025 fiscal execution concerns in Mexico and risks related to the next US administration.”

FINDING VALUE

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Zulfi Ali, a portfolio manager at PGIM Fixed Income in New Jersey, said Mexican bonds have “underperformed recently and with the added new issue concession, investors appeared to find value in the new issues.”

The sovereign priced the 6% 2030 notes at 99.453 to yield 6.124%, or 170 basis points over US Treasuries, after opening the initial price talk earlier in the day at around 210 basis points. Meanwhile, the 2037s carry a coupon of 6.875% and priced at 99.594 to yield 6.926%, or 230 basis points over USTs, down from the initial 260 basis points area, according to a source involved in the deal.

It also printed 7.375% 2055 notes at 99.618 to yield 7.408%, equal to a spread of 255 basis points over USTs, after opening the deal at around 290 basis points, the source added.

“Even after Mexico decided to issue more bonds than initially announced and tightened price guidance, the new bonds continue to trade up in the grey market,” said David Austerweil, a New York-based deputy portfolio manager of emerging market fixed income at VanEck.

“Based on our own valuation model, the 12-year and the 30-year bonds were issued 30 basis points and 60 basis points cheap to the curve, which is an attractive premium for an IG borrower,” he added. “The new 5-year bond, however, did not offer investors any concession.”

VOLATILITY, FRICTION

Bank of America, Goldman Sachs, JPMorgan, Scotiabank and SMBC Nikko were joint bookrunners on the Rule 144A/ Reg S offering, according to a prospectus for the sale.

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The Mexican government plans to use the proceeds to cover general budgetary purposes, including refinancing domestic and external debt, the document says.

“No doubt current pricing incorporates some of investors’ concerns with regards to Mexico’s negative ratings trajectory and potential headline volatility with the Trump administration,” said Kevin Ritter, head of emerging markets at Pasadena, California-based Western Asset Management.

“The Sheinbaum administration will need to address investor concerns with regards to the fiscal trajectory while balancing its relationship with the incoming Trump administration where there will be key friction points over trade and immigration,” Ritter added.

Investors said the Mexican government could follow last year’s pattern and return later in 2025 with issuances in euros and Japanese yen.

Mexico raised $7.5 billion in the US market in January last year and followed it with a €2 billion ($2.07 billion) sale in the European market later that same month and a ¥152.2 billion ($1.04 billion) five-part sale in the Japanese market in August.

“The new issue size should be close to sufficient to meet most of Mexico’s US Dollar funding needs for the remainder of 2025, though another issuance towards the end of the year is always possible if market conditions are attractive,” said VanEck’s Austerweil.

The country could raise an additional $5 billion in international markets this year, PGIM’s Ali added.