Bloomberg News

Corporate Debt Sinks Most in 13 Months on Growth: Mexico Credit

June 30, 2011

June 30 (Bloomberg) -- Mexican corporate bonds are slumping the most in 13 months as slowing growth in Latin America’s second-largest economy prompts investors to shun debt sold by companies from Cemex SAB to Grupo Famsa SAB.

Corporate dollar debt fell 1.26 percent in June, the biggest monthly loss since May 2010, according to JPMorgan Chase & Co. Bonds sold by Brazilian companies were little changed in June, while Russian corporate notes slid 0.59 percent.

Mexico’s economy grew 2.4 percent in April, the slowest pace since December 2009, amid faltering export demand from the U.S., the Latin American nation’s biggest trade partner. Average corporate borrowing costs jumped 25 basis points, or 0.25 percentage point, in June to 6.40 percent, according to JPMorgan. Rising yields led Cemex, the largest cement maker in the Americas, to scrap a $650 million bond sale on June 23.

“Mexico continues to be directly affected by the U.S. economy, and you aren’t seeing a solid recovery in the U.S. economy yet,” Alvaro Gonzalez, an emerging-market credit analyst at Miller Tabak Roberts Securities Llc in New York, said in a telephone interview. “This is obviously impacting some industries in Mexico.”

The average yield on Mexican government dollar bonds fell three basis points in June to 4.73 percent, according to JPMorgan.

Yields on Cemex’s bonds due in 2020 climbed 70 basis points in June, the biggest monthly increase since the securities were sold in May 2010, to 9.47 percent, according to data compiled by Bloomberg. The U.S. economy is the Monterrey-based company’s biggest foreign market. Cemex spokesman Jorge Perez didn’t return a call seeking comment.

Growth Outlook

The yield on Grupo Famsa’s notes maturing in 2015 jumped 26 basis points in June, the first monthly increase since the furniture retailer issued the bonds in July, to 8.47 percent, according to data compiled by Bloomberg. Hernan Lozano, a spokesman for Famsa, based in Monterrey, Mexico, declined to comment.

Federal Reserve officials last week cut their 2011 and 2012 growth forecasts for the U.S. economy, the destination for about 80 percent of Mexico’s exports. The world’s biggest economy will expand by 2.7 percent to 2.9 percent this year, down from April’s forecasts of 3.1 percent to 3.3 percent, based on the median range of projections.

Greece Concerns

“We had negative manufacturing and housing data coming from the U.S. and that has reduced somewhat the economic outlook in Mexico,” Enrique Alvarez, head of Latin America fixed-income research at IdeaGlobal in New York, said in a telephone interview.

Mexico’s corporate debt will rebound as concern eases regarding the chance Greece will default, driving up the demand for higher-yielding assets, said Omar Zeolla, an emerging-market credit analyst at RBS Securities Inc. in Stanford, Connecticut.

Greek Prime Minister George Papandreou yesterday clinched enough votes to pass the first part of an austerity plan aimed at meeting European Union aid requirements and staving off default for his debt-laden nation.

“After the vote in Greece, the market will get better,” Zeolla said in a telephone interview. “The rebound after Greece could bring some Mexican corporates to try the new-issue market and it should improve the performance of Mexican corporates.”

Mexican corporate bond offerings in overseas markets have totaled $8 billion this year, down 49 percent from the same period last year, according to data compiled by Bloomberg.

Default Swaps

The cost to protect Mexican debt against non-payment for five years fell 4 basis points to 107, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a government or company fails to adhere to its debt agreements.

The extra yield investors demand to hold Mexican government dollar bonds instead of U.S. Treasuries narrowed 5 basis points to 125 basis points at 5 p.m. New York time, according to JP Morgan.

The peso rose 0.3 percent to 11.7135 per U.S. dollar. It’s down 1.2 percent in June, the worst-performing currency in Latin America.

Yields on futures contracts for the 28-day TIIE interbank rate due in January fell 3 basis points to 4.94 percent, indicating traders expect the central bank to raise the rate in February. Mexico is the only major Latin American country to keep borrowing costs unchanged in the past year. Policy makers said in a statement after their decision to keep interest rates at a record low 4.5 percent on May 27 that there was a “moderation in the pace” of the expansion.

“Mexico is more linked to global growth and in particular U.S. growth, and that’s where there has been uncertainty,” Benito Berber, a strategist at Nomura Securities Inc. in New York, said in a telephone interview.

--Editors: Lester Pimentel, Jonathan Roeder

To contact the reporters on this story: Veronica Navarro Espinosa in New York at vespinosa@bloomberg.net; Andres R. Martinez in Mexico City at amartinez28@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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